UKs biggest lender ends IO mortgages without evidence.

wotsthat

Really2 wrote: »

You have only factored a repayment for year 25 on IO?
Why do people think the people on IO will only repay at the end of the term? It is not just RM, there are many of us on here offsetting and overpaying to reduce total Interest repayment.

Mean as we are MSE on here you would only do that if you could get a 5%+ return on the money you were saving by not going on repayment.

If you had an IO and used the payments you saved as capital repayments on the above they would be identical in every way.

I was just trying to keep the numbers simple to demonstrate the point that Derv, and Chucky eluded to i.e. IO mortgages are more expensive than repayment. It's compounding in reverse.

Yes I agree that if you had an IO and used the payments saved as capital repayments then the figures would be the same as a repayment mortgage because you've just described a repayment mortgage.

Conrad

wotsthat wrote: »

Is it better to make a single capital payment or 12 per year? I can't be arsed to work it out but I think RM has it under control anyway.

Monthly as long as lender calculates interest daily.

This is all a non argument anyhow.

In the real world people do not make these calculations, instead they base thier decision on broad imperatives.

So someone wanting int only with the intention of repaying capital monthly, would make such a choice if for example they felt there may be a time in the forseeable future when money could be tight on account of them wanting to start a family in 5 years, or start a new business, or they think it reasonably likely they might find themselves out of work (actor / IT contractor / oil rig errector / agency staff).

The advantage of int only in such situations is that the applicant can revert to minimal interest only regime for a time without any permission or involvment of the lender.

I myself am self employed so I find int only preferable as I can repay at will when times are good, and reign -in cost when they might not be.

Life is full of grey.

nembot

Really2 wrote: »

But now they hang out on here saying they are too expensive, going to crash etc.:D

Would you disgree with my original statement though?

DexterA

Really2 wrote: »

Not true? you don't get a higher rate just becasue it is IO.

a 5% fixed rate could be repayment or IO as you chose the product then the repayment vehicle.

You are talking about higher risk (sub prime) that would also be the same for repayment.

In most cases you do. Perhaps agree to disagree.

Thought process as follows.

IO => higher risk during the mortage term (less capital/reserves) & select risk of clients who take out this type of mortgage => higher rate of interest.

However, any repayment that allows non capital repayments until term, could use the same pricing assumptions, so either could be right.

Really2

wotsthat wrote: »

Yes I agree that if you had an IO and used the payments saved as capital repayments then the figures would be the same as a repayment mortgage because you've just described a repayment mortgage.

Indeed so in reality a IO mortgage is not more expensive. It is only more expensive if you do not make capital payments.

But one would have to wonder how many in the last 3-4 years have taken IO's on without factoring in repayments.

Most of us IO's seem to be offseter's now.

Conrad

DexterA wrote: »

In most cases you do. Perhaps agree to disagree.

UOTE]



There is no pricing differnteation between I/O and cap rep.

DexterA

wotsthat wrote: »

I was just trying to keep the numbers simple to demonstrate the point that Derv, and Chucky eluded to i.e. IO mortgages are more expensive than repayment. It's compounding in reverse.

Not necessarily true. It depends on the risk discount rate.

Really2

DexterA wrote: »

In most cases you do. Perhaps agree to disagree.

Thought process as follows.

IO => higher risk during the mortage term (less capital/reserves) & select risk of clients who take out this type of mortgage => higher rate of interest.

I take it you have never held a mortgage. Nearly all mortgages you can chose to be repayment or IO without having to go for a different product.
You can get a mortgage and get the same rate IO or repayment. The bank may ask you how you are going to repay but you still get the same rate.

You are clearly talking of subprime. Subprime is higher capital or repayment.

DexterA

Conrad wrote: »

DexterA wrote: »

In most cases you do. Perhaps agree to disagree.

UOTE]



There is no pricing differnteation between I/O and cap rep.

I find that difficult to believe. However it is your field of expertise.

There certainly should be a pricing difference, to reflect the risk and uncertainty.

DexterA

Really2 wrote: »

I take it you have never held a mortgage. Nearly all mortgages you can chose to be repayment or IO without having to go for a different product.
You can get a mortgage and get the same rate IO or repayment. The bank may ask you how you are going to repay but you still get the same rate.

You are clearly talking of subprime. Subprime is higher capital or repayment.

Mortgage, always gone for the lowest rate, sometimes assuming a few years, sometimes held until term. I've never taken out an interest only. There's more risk to the lender with IO. I expect either the pricing isn't sophisticated enough to differentiate or there's to small a difference to bother.