We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
Debate House Prices
In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non MoneySaving matters are no longer permitted. This includes wider debates about general house prices, the economy and politics. As a result, we have taken the decision to keep this board permanently closed, but it remains viewable for users who may find some useful information in it. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
UKs biggest lender ends IO mortgages without evidence.
Comments
-
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.
I was only doing this to help Derv out!
You can't argue that in reality an IO mortgage is only more expensive if you don't make capital payments because you're describing a repayment or at least a part repayment model. Let's agree that the figures show that a pure IO vs. pure repayment model is more expensive.
My guess at how many have taken on IO's in the last 3 years or so without considering how to repay the capital is tiny. As you say even IO's seem to be keen overpayers which shows the benefits of compounding in reverse i.e. you save interest.
As Conrad said it's a non-argument - the maths are interesting that's all.0 -
my mortgage is repayment and by paying another 10% capital back in the first year. i'm saving about 5% in interest payments on my mortgage each and every year which themselves are becoming capital repayments.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.
if you can do this every year as Really is doing and make the saved interest payments as capital repayments, you break the back of your mortgage
the interest only vs repayment mortgage is probably quite personal and probably what suits peoples circumstances and plans. there's no real debate which is better or worse.0 -
In the real world, if you had a repayment mortgage, you would have to be making capital repayments, and that would mean that the cost of the mortgage, stripping out capital repayments, would be much different to what you are doing now (unless, as I have previosuly stated) you carefully calculated the overpayments on your IO mortgage.
Could anyone clarify that what I typed earlier is correct ?
"Reverse compound interest" was mentioned earlier, thoess words have gone through my mind in the last day or so.
I think I have demonstrated that I do have good knowledge of how IO and repayment mortgages work. This was never about the advantages/disadvantages of IO mortgages. RM clearly thinks that at the moment, and IO mortgage is a better product for himself. I am not going to say if it is or isn't, only hindsight will prove that. I will say that his plans sound fair and reasonable, and good luck to him. Different mortgage products will appeal to different people, I like(d) my offset mortgage, as it gives me loads of flexibility - overpayments, offsetting, early repayment, full term repayment (which is what I am doing now, 8 years to go and a very small amount to pay - I'd rather not finish the mortgage as there is a "reserve" that I can call upon if I wish, and they charge me an early payment fee if I pay off all of the capital. I might as well keep the mortgage going with it's tiny repayments, as I am fully offsetting the remaining balance).30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
the interest only vs repayment mortgage is probably quite personal and probably what suits peoples circumstances and plans. there's no real debate which is better or worse.
Absolutely, and I think I just said as much.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
This debate has become quite reasonable. I'm impressed.
(D <=== waits for someone to call him a sockpuppet)0 -
"So. If I choose a repayment mortgage, and ignore the repayment part of the payments (even though I have to pay them), I will end up paying the same in interest as I would if I had taken an IO mortgage.
Really ?"Yes it is the capital repayment that lowers the interest.
[STRIKE]Good.[/STRIKE]
Hang on a second, please carefully read my statement. Are you saying yes, my statement is correct, or, the amount of interest will be the different ?
If I chose a repayment mortgage, and did what I am supposed to do, make the payments on time and in full, then the mortgage would be paid off at the end of the term, and I would have paid x amount of interest.
If I had decided to take an IO mortgage for the same amount, over the same term, and did what I was supposed to do, make the payments on time and in full, then it would have cost me more in interest than it would for the repayment mortgage.
Now overpayment in either case (if allowed) will alter the amount of interest cost, and larger/earlier overpayments on the IO mortgage may well end up meaning that the IO choice was cheaper as far as interest is concerned.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
In my experiment with the spreadsheets yesterday, I was trying to produce figures which would explain my reasoning. I got into a bit of a mess, due to the fact that there were so many ways in which I could have simulated what RM was going to do as far as overpayments were concerned. However, an interesting(no pun intended) thing cropped up.
I tried to test what would happen if RM was on a repayment mortgage, and used some of the overpayment fund that he planned on using each year to fund the extra cost of the capital repayment. I think I did find (too many numbers !) that it would be cost effective for him to use some of next years overpayment to fund the repayment mortgage. However, the reason I didn't mention this is that I wanted to get to the bottom of the original "argument", which I have now done. Considering the pros and cons of using his overpayment funds to make payments of a repayment mortgage will open up a big debate on how his overpayment fund is being invested, and that would have certainly sent us off on a huge tangent.30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0 -
RenovationMan wrote: »Quite an interesting and wide ranging debate about repayment strategies, compound interest, amortization of a loan over the full length of a mortgage, etc, etc.
However, this has nothing to do with my statement that an Interest Only mortgage is just a Repayment Mortgage with the Capital Repayment part stripped out. FACT.
You could look at it like that. You could say that a Porsche 911 is a VW Beetle with some modifications.
Using your logic, would Conrad say to a client......
"Well, a repayment mortgage will cost you the same as an IO product, if you don't pay the capital part" ?
I think any intelligent client would reply "Is there such a thing as a repayment mortgage where I can ignore the capital repayment ?".30 Year Challenge : To be 30 years older. Equity : Don't know, don't care much. Savings : That's asking for ridicule.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 352K Banking & Borrowing
- 253.5K Reduce Debt & Boost Income
- 454.2K Spending & Discounts
- 245.1K Work, Benefits & Business
- 600.7K Mortgages, Homes & Bills
- 177.4K Life & Family
- 258.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.2K Discuss & Feedback
- 37.6K Read-Only Boards