Cash-strapped families switch £60bn-worth of mortgages to interest-only

DervProf

And this was the main thing that started it all off......

Originally Posted by RenovationMan
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.


I questioned this, and off we went.

chucky

DervProf wrote: »

If I did, I'm sure you wouldn't, going by past experience.

that's your decision.

it's a bit strange that you're constantly brining up and keep on saying that i won't answer it when you won't tell even me what the question was.

all a bit weird.

chucky

DervProf wrote: »

And this was the main thing that started it all off......

Originally Posted by RenovationMan
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.


I questioned this, and off we went.

i don't understand why you don't understand that.

you have a repayment mortgage which is capital repayment + interest on the capital outstanding.

interest rates start to rise you stop repaying capital as part of the repayment and just pay the monthly interest on the capital outstanding.

the other option is he he has an interest only mortgage that he is making capital repayments to. if rates go up he stops making those capital repayments.

JonnyBravo

DervProf wrote: »

And this was the main thing that started it all off......

Originally Posted by RenovationMan
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.


I questioned this, and off we went.

I know and now you've changed it to saying he wanted to strip out interest payments :rotfl:

You're not very good at this are you?

DervProf

chucky wrote: »

that's your decision.

it's a bit strange that you're constantly brining up and keep on saying that i won't answer it when you won't tell even me what the question was.

all a bit weird.

OK, one last try.

chucky wrote: »

well i was trying to get some more info out of you to see if you actually understood what the article actually meant...

let's do the basics for you... from the article.

that would be £60,000,000,000 right... with 300,000 mortgage owners switching to interest only. that would be an average mortgage of £200,000. ok fine.

then the next paragraph says that the average mortgage is £109,000
so which is right?

so when i try to smell the coffee i can't really because the article is rubbish and as for your intelligence... let's just leave that one there. nuff said on that one

They are both right.

DervProf

chucky wrote: »

i don't understand why you don't understand that.

you have a repayment mortgage which is capital repayment + interest on the capital outstanding.

interest rates start to rise you stop repaying capital as part of the repayment and just pay the monthly interest on the capital outstanding.

the other option is he he has an interest only mortgage that he is making capital repayments to. if rates go up he stops making those capital repayments.

Which will make a difference to the cost of the mortgage.

RenoMan suggested that stripping out the repayment part of the mortgage would mean they cost the same. wether you strip out the repayment part or not, if you are RenoMan (having an IO mortgage, but making lump sum repayments), there will be a cost difference, and you can't ignore capital repayments. If he switches mortgages, whichever way, and at whatever time (or number of times), the overall cost and the cost of the interest will differ.

chucky

DervProf wrote: »

OK, one last try.



They are both right.

that's fine i didn't argue they were both right or wrong. of course they could be both right.

i was arguing the point how they got to the £200k average mortgage hence my asking of "how many was many".

i can tell you how they got to it and i did a few times for you, shortchanged and devon which you ignored and became obsessed on the actual number. as i explained they got to by hashing two pieces of data that weren't exactly related.

chucky

DervProf wrote: »

Which will make a difference to the cost of the mortgage.

RenoMan suggested that stripping out the repayment part of the mortgage would mean they cost the same. wether you strip out the repayment part or not, if you are RenoMan (having an IO mortgage, but making lump sum repayments), there will be a cost difference, and you can't ignore capital repayments. If he switches mortgages, whichever way, and at whatever time (or number of times), the overall cost and the cost of the interest will differ.

i don't think so but i'll explain why i think it won't but this may explain what you're getting at.

£100k mortgage on interest only is £1000 a month. you pay £100 capital back each month.

interest rates go up and interest repayments go to £1,100 a month, he can't pay capital back.

but what he has done is save himself mortgage interest on every £100 he overpaid as capital repayments.

DervProf

chucky wrote: »

that's fine i didn't argue they were both right or wrong. of course they could be both right.

i was arguing the point how they got to the £200k average mortgage hence my asking of "how many was many".

i can tell you how they got to it and i did a few times for you, shortchanged and devon which you ignored and became obsessed on the actual number. as i explained they got to by hashing two pieces of data that weren't exactly related.

Not directly related, no. I said before that the article was using the two figures as a comparison. No, there are no conclusions, but I think it's fair enough to show the two figures.

A bit like this, for example.......

"Average gates at Premiership matches fell by 2,357 last year........

..... the average ticket price to a Premiership game was £35.43".

Not directly related, but maybe relevant.

You may not have agreed with the conclusions or the opinions put forward in the aticle about people switching to IO mortgages, but the stats that were published were relevant, in my opinion. As to the accuracy of those figures, who knows ?

DervProf

chucky wrote: »

i don't think so but i'll explain why i think it won't but this may explain what you're getting at.

£100k mortgage on interest only is £1000 a month. you pay £100 capital back each month.

interest rates go up and interest repayments go to £1,100 a month, he can't pay capital back.

but what he has done is save himself mortgage interest on every £100 he overpaid as capital repayments.

What I was trying to get at was that RenoMan was sort of fooling himself. I could do the same, like this.......

"I would say that it makes no difference to me what car I buy next, a £5K Porsche or a £5K Renault. Strip out the running costs and both will cost the same amount."

There is a more "technical" aspect to what RenoMan said too, and that's what I struggled to prove, as has been pointed out.

If you do "strip out" the repayment part of a repayment mortgage, then you have an IO mortgage. If you insist that you can "ignore" the capital repayment part of a repayment mortgage (but you are still on a repayment mortgage, and therefore paying the capital component), then the costs will differ, as the interest component will reduce each time you make a payment - the interest component won't decrease during the life of an IO mortgage (unless interest rates change, or you may repayments, if allowed).

And that's what I was trying to say. I don't think there is anything wrong with my reasoning, but I think there was something wrong with RenoMan's "idea".