MILLIONS of Young People WANT & NEED Higher House prices!!!

CLAPTON

Thrugelmir wrote: »

To be fair Einstein I doubt he was referring to mortgages. Mathematical compounding is a far more important factor when reinvesting income due to the amplifying effect.

actually, if you compare a loan where the interest compounds with savings where the interest compounds then the result (on a like for like basis) will be exactly the same.


one person's debt is another person's savings : how could it be otherwise?

TickersPlaysPop

I do love how people get feisty on here lol

Thank you to all that got involved.

So... some companies do offer lifetime fixed mortgages... therefore, the interest rate is known for the term say 25 yrs. that means Mr banker could calculate things a little differently, I.e. Spread the interest payments more evenly, resulting in the borrower benefitting when they move after 7 yrs because they would have reduced more of the sum borrowed compared to the regular repayment mortgages?

I do not think the front loading of interest is a cruelty of simply maths, but a cruel choice of how to calculate the mortgage interest payments. It is treating house loans like some horrible car loans that sting you when your change car too early.

Generali

TickersPlaysPop wrote: »

I do love how people get feisty on here lol

Thank you to all that got involved.

So... some companies do offer lifetime fixed mortgages... therefore, the interest rate is known for the term say 25 yrs. that means Mr banker could calculate things a little differently, I.e. Spread the interest payments more evenly, resulting in the borrower benefitting when they move after 7 yrs because they would have reduced more of the sum borrowed compared to the regular repayment mortgages?

I do not think the front loading of interest is a cruelty of simply maths, but a cruel choice of how to calculate the mortgage interest payments. It is treating house loans like some horrible car loans that sting you when your change car too early.

Nah, you just don't understand how mortgages work.

Generali

I hate to interrupt the feuding with some facts but here goes.

The calculation for mortgage payments doesn't usually include compounding as the interest is paid off in full each month as it accrues. If you have a daily calculation on your mortgage interest instead then it will include compounding as you are not paying your mortgage as interest accrues.

On an interest only mortgage where interest accrues monthly and is paid monthly, the repayment is calculated thus:

Payment = RoI/12 * Principle.

That is a simple interest calculation.

To calculate a repayment mortgage you use the following calculation:

=[(Principle-Payment for last month+interest from last month)*RoI/12]+Principal repayment

The principal repayment amortisation is worked out using the following formula:

Payment = (Principal*RoI)/ [1-(1+RoI)^(-no of payments)]

The reason that you pay off a mortgage unevenly is because at the start you owe a lot so you pay a lot of interest and the mortgage payments are amortised to make them the same each month.

If you want to pay an even amount off your mortgage principal there is absolutely nothing stopping you: you will make larger payments at the start of the loan and smaller ones at the end as the interest component of your loan will become smaller each month.

As mortgages became mass market products in a time when inflation was high and real interest rates on mortgages were generally negative, it made sense to delay paying the principle for as long as possible.

Now we live in an environment with positive real interest rates and low inflation it makes sense to pay off the principal as quickly as possible. That involves making higher payments today. However, house prices have increased and (as a result?) lower nominal interest rates have made mortgages more affordable today and less affordable tomorrow. As a result, most borrowers will struggle to pay off much of their mortgage at the start of the term.

If you have a mortgage where the interest is calculated daily then you will pay interest that is compounded intra month but not inter-month.

Of course, all this assumes that you don't have a low start (negative amortisation) mortgage. On those you often make payments below the amount of interest accruing and so you will end up paying compound interest.

There is a mortgage repayment calculator here:

http://www.excel-skills.com.au/templates/mortgage_calculator.xls

(opens in Excel)

ukcarper

TickersPlaysPop wrote: »

I do love how people get feisty on here lol

Thank you to all that got involved.

So... some companies do offer lifetime fixed mortgages... therefore, the interest rate is known for the term say 25 yrs. that means Mr banker could calculate things a little differently, I.e. Spread the interest payments more evenly, resulting in the borrower benefitting when they move after 7 yrs because they would have reduced more of the sum borrowed compared to the regular repayment mortgages?

I do not think the front loading of interest is a cruelty of simply maths, but a cruel choice of how to calculate the mortgage interest payments. It is treating house loans like some horrible car loans that sting you when your change car too early.

As gen says you really don't understand you borrow £100k at 4% so the interest for the first year is £4k so your repayments are £4k+x
The next years interest is 4% of £4k-x so your payments pay more off capital so following years interest is lower and so on.

I see gen got in before me I've tried to make it simple not sure I have succeeded.

TickersPlaysPop

I am questioning the motivations of some that bother to read and post here.

For quite a popular forum such as this where even the government post information, I think there will be worries by certain groups of anything that is a bit radical and risky to the establishment.

Such as any opinions and support that go against the current movement towards a bigger gap between rich and poor, increasing global economic instability, increased perceived threat from terrorists, closer to the United States of Europe etc etc etc.

I would like to find a forum where people are not hidden and anonymous, where people whom claim to know so much should not need Anonymity, they should be proud of who they are and what they know.

Of course, that is our current government and political system?! .... And that is looking like it will melt down next year where there is widespread disgust with all of the main parties and people see UKIP as the protest vote and the .... 'let's give them a chance' option.

purch

CLAPTON wrote: »

no idea what you are talking about

.............but of course that will never be a reason for not continuing ad nauseam :eek:

wotsthat

Generali wrote: »

I hate to interrupt the feuding with some facts but here goes.

The calculation for mortgage payments doesn't usually include compounding as the interest is paid off in full each month as it accrues. If you have a daily calculation on your mortgage interest instead then it will include compounding as you are not paying your mortgage as interest accrues.

On an interest only mortgage where interest accrues monthly and is paid monthly, the repayment is calculated thus:

Payment = RoI/12 * Principle.

That is a simple interest calculation.

To calculate a repayment mortgage you use the following calculation:

=[(Principle-Payment for last month+interest from last month)*RoI/12]+Principal repayment

The principal repayment amortisation is worked out using the following formula:

Payment = (Principal*RoI)/ [1-(1+RoI)^(-no of payments)]

The reason that you pay off a mortgage unevenly is because at the start you owe a lot so you pay a lot of interest and the mortgage payments are amortised to make them the same each month.

It's a simple interest calculation to calculate next months interest payment but you can't calculate the interest payment for 6 months hence without compounding the interest rate by the number of payments in some way.

The way most people would do this is, in excel, repeat your simple interest calculation on each row i.e. A series of simple interest calculations. However, that's simply a way of introducing compounding without having the inconvenience of having to find out how to work out where the x to the power of y button is on a calculator.

The reason a mortgage is paid off unevenly is as you say but if the debt remaining is plotted against it's clear that the relationship is exponential by virtue of the compounding effects of the principal paid.

Clapton is right in that no interest is compounded as it's paid off each month but the calculations are the same as any other compound interest calculation. The reason Tickers doesn't understand mortgages is because he/ she doesn't understand compound interest.

the_flying_pig

The repayment thing is very simple but I agree very non-obvious. Banks don't go out of their way to explain it to you.

Here's an illustrative example for annual rather than monthly repayments.

https://docs.google.com/spreadsheets/d/tfXjnGBGIVW41cl8JK3s3MA/htmlview

CLAPTON

wotsthat wrote: »

It's a simple interest calculation to calculate next months interest payment but you can't calculate the interest payment for 6 months hence without compounding the interest rate by the number of payments in some way.

The way most people would do this is, in excel, repeat your simple interest calculation on each row i.e. A series of simple interest calculations. However, that's simply a way of introducing compounding without having the inconvenience of having to find out how to work out where the x to the power of y button is on a calculator.

The reason a mortgage is paid off unevenly is as you say but if the debt remaining is plotted against it's clear that the relationship is exponential by virtue of the compounding effects of the principal paid.

Clapton is right in that no interest is compounded as it's paid off each month but the calculations are the same as any other compound interest calculation. The reason Tickers doesn't understand mortgages is because he/ she doesn't understand compound interest.

this is an incorrect use of the word 'compound'