UKs biggest lender ends IO mortgages without evidence.

DervProf

Conrad, the central point is me objecting to RM's statement......

"I would say that it makes no real difference whether I have an interest only mortgage or repayment one when rates start to rise. Strip out the repayment part of the mortgage and both will cost the same amount."

He says that all he was saying is that a repayment mortgage without repaying the capital is an IO mortgage.

I claim that he was (very strongly) implying that as far as he is concerned it makes no difference to his interest cost, if he is on a repayment mortage or his current IO one. I said that it would make a difference (rate rise or not).

Really2

chucky wrote: »

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.

Indeed the only thing for sure is what ever you repayment plan the name of the game is to pay it back ASAP to save your self £X0000's

DexterA

Really2 wrote: »

Indeed the only thing for sure is what ever you repayment plan the name of the game is to pay it back ASAP to save your self £X0000's

In the main, you're right. However it can depend on your interest rate. There was a while when you could borrow at a lower rate than you could earn by putting the monies in a savings account.

A good arbitrage opportunity.

Really2

DervProf wrote: »

[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 you take a repayment motgage and striped out the capital repayment (never repaid any capital) the monthly payment would be the same as an IO.
Because it is basically an IO.
In my opinion you take an IO if you think the IO rate will be less than fixed rates (my case)
Or if you think you can beat a fixed rate in savings (eg 5% fixed rate savings rate 5.5%)

If you plan correctly both are very similar, just that IO is more hands on and more flexible to rate changes etc. (EG I could could jum to fixed repayent tomorrow if I thought rates were going to rocket, but being fixed is inflexible)

Really2

DexterA wrote: »

In the main, you're right. However it can depend on your interest rate. There was a while when you could borrow at a lower rate than you could earn by putting the monies in a savings account.

A good arbitrage opportunity.

I could now, (due to my rate) but I prefer the safety of my offset (not very MSE I know)

chucky

DexterA wrote: »

In the main, you're right. However it can depend on your interest rate. There was a while when you could borrow at a lower rate than you could earn by putting the monies in a savings account.

A good arbitrage opportunity.

when stoozing was around i had nearly £40k on credit cards at between 0% and 1.5% and stuck it on the offset that i had. when it had to be repaid i returned the money. it just didn't make sense not to.

i know of someone on this board, that uses a S&S ISA as the repayment vehicle for his mortgage - it seems to work for him. not for me. it's a bit too high risk for me.

wotsthat

DervProf wrote: »

And suprisingly, nobody has stepped up and given an honest opinion on how this turned out. Probably a wise move .

I think it turned out really well.

In fact it's given me an idea for a new mortgage product. It's an interest only mortgage with a twist - instead of paying just the interest an additional 12 equally spaced payments are made each year intended to pay off the capital in a 25 year period. I'm going to sell the idea to Nationwide BS but I can't think of a snappy enough name for it.

chucky

wotsthat wrote: »

I think it turned out really well.

In fact it's given me an idea for a new mortgage product. It's an interest only mortgage with a twist - instead of paying just the interest an additional 12 equally spaced payments are made each intended to pay off the capital in a 25 year period. I'm going to sell the idea to Nationwide BS but I can't think of a snappy enough name for it.

you're a bit late on that product - it's been about for about 1,400 years.

as far as i understand Sharia banking functions in this was so that interest isn't paid but capital is repaid in addition to an amount equivalent to interest but is described as a lease fee. interest payments are forbidden under islamic law

DervProf

wotsthat wrote: »

I think it turned out really well.

In fact it's given me an idea for a new mortgage product. It's an interest only mortgage with a twist - instead of paying just the interest an additional 12 equally spaced payments are made each year intended to pay off the capital in a 25 year period. I'm going to sell the idea to Nationwide BS but I can't think of a snappy enough name for it.

Nice idea, but it'll never catch on. Sounds expensive.

chucky

Really2 wrote: »

Indeed the only thing for sure is what ever you repayment plan the name of the game is to pay it back ASAP to save your self £X0000's

i've actually seen an argument against this and it does make sense.

it says pay back your mortgage but allow for part of those funds to go into your ISA and also your pension so to plan for retirement when you can.

if you pay everything you save into your mortgage it leaves you nothing to contribute into your pension or ISA each month, which is very important bfore you get too old.

this is all person specific but it does make sense depending on age, circumstances, spare cash available etc