Interest rates will rise faster and higher than anyone expects

RenovationMan

Martin also has a decent section on inflation-linked savings that include info on NSANDI products:

http://www.moneysavingexpert.com/savings/inflation-linked-savings

DervProf

chucky wrote: »

you're too kind renovation man, it's getting obvious from his posts that dervprof is more interested in the individual posters than the actual savings rates on offer...

Oh !!!!!!.

It's like trying to discuss something with someone with a very short term attention span.

I happen to be discussing savings rates, and I'm going to expand the discussion shortly. I am fairly well clued up about savings rates, and saving products. I am not talking about you or RenoMan, I am discussing this subject with you.

Graham_Devon

So how much would it cost to switch from a capital repayment mortgage, to an interest only mortgage?

Secondly, what mortgage rate would you need to be on to make a 3% savings account more profitable. I.e. pay your capital payments into the savings account each month to make a profit. Remember, the savings accounts have 20% interest taken for normal rate taxpayers, reducing 3% to 2.4%.

The sums must be extreme, at best. You'd have to be making hundreds in interest just to break even from the admin fee on the mortgage swithc.

I believe switching to interest only to make a profit from these savings accounts was suggested to be the reason for the majority of switches to IO.

I don't believe it. i believe it was completely made up. Couldn't get proof, so can we even get the sums to work?

DervProf

Hi Graham, you have just stolen some of my thunder.

DervProf

Graham_Devon wrote: »

I believe switching to interest only to make a profit from these savings accounts was suggested to be the reason for the majority of switches to IO.

I don't believe it. i believe it was completely made up. Couldn't get proof, so can we even get the sums to work?

Neither do I.

It may work for some people, but out of those people, who actually did it ? A few almost certainly have done it. I think RenoMan is doing this, and it isn't a bad idea if you can get it to work.

The point I was coming to is that I don't think many people will have sat down, done the maths, and then found there to be much of, or any advantage in switching to IO. Even if there is an advantage, would it be worth the hassle ?

RenovationMan

Graham_Devon wrote: »

So how much would it cost to switch from a capital repayment mortgage, to an interest only mortgage?

My previous mortgage provider charges a set fee of £30 to change from Repayment to IO and vise-versa. I'm now with Santander on IO and have no idea about their charges. I assume it wouldn't be a million miles away from the same £30 'admin' charge.

Some people on the DFW board have had problems switching to IO because they were in financial difficulties. I read that a lot of the sub-prime mortgage lenders don't allow a switch to IO. I guess the banks make a judgement call on the reason people want to switch and if it's because the customer is struggling then they don't allow it.

chucky

i'm happy all the toys are back in the pram now...

sums... it's like explaining something to a 6 year old here...

for each 1% on a £150k mortgage is £1500 in interest - if you can earn just 1% more on your savings it's well worth doing.

switch from repayment to I/O i believe it's very cheap to do or even free.

i await the tangents from the usual suspects...

Graham_Devon

DervProf wrote: »

Hi Graham, you have just stolen some of my thunder.

Oops, sorry mate.

DervProf

RenovationMan wrote: »

My previous mortgage provider charges a set fee of £30 to change from Repayment to IO and vise-versa. I'm now with Santander on IO and have no idea about their charges. I assume it wouldn't be a million miles away from the same £30 'admin' charge.

Some people on the DFW board have had problems switching to IO because they were in financial difficulties. I read that a lot of the sub-prime mortgage lenders don't allow a switch to IO. I guess the banks make a judgement call on the reason people want to switch and if it's because the customer is struggling then they don't allow it.

I think this discussion is based more around people who have not taken out mortgages from "sub-prime" lenders.

May I ask if the mortgage you took with your previous provider was a "normal" mortgage, or was it a product that included the facility to switch between IO and repayment ?

Graham_Devon

RenovationMan wrote: »

My previous mortgage provider charges a set fee of £30 to change from Repayment to IO and vise-versa. I'm now with Santander on IO and have no idea about their charges. I assume it wouldn't be a million miles away from the same £30 'admin' charge.

Some people on the DFW board have had problems switching to IO because they were in financial difficulties. I read that a lot of the sub-prime mortgage lenders don't allow a switch to IO. I guess the banks make a judgement call on the reason people want to switch and if it's because the customer is struggling then they don't allow it.

Thats fair enough, so in some cases, the admin fee isn't really an issue. Thanks for clearing that one up. But you'd still need £1,250 capital in a savings account paying 3% to earn that £30 back after tax.

So, we now know that.

Moving on, what interest rate are these mortgages on? Are we talking JUST the 0.5% BOE trackers here? Miniscule amounts?

We've still got some way to go before we get to the stage of suggesting that the majority of the 300,000 switched to IO in the last year has been the result of people switching to IO to shove the money into a savings account to make pennies.

Indeed, the article stated, specifically, as did the FSA, that they had been switched by their lenders due to payment difficulties. However, we are supposed to ignore that, as the FSA was confused and the journalist was misinformed.

If I'm still stealing thunder, apologies!