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

wotsthat

CLAPTON wrote: »

this is an incorrect use of the word 'compound'

It's close enough. Just substitute with exponent, index or power if you're offended.

LydiaJ

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.

Your suggestion wouldn't work.

There are loans where the interest is calculated up front for the whole term and spread over payments. They aren't used for mortgages but sometimes for hire purchase agreeements, car purchase financing and other such things, AFAIK. The rules are usually that because of the way your interest has been calculated, you have to pay all of it - so even if you pay back the loan early, you have to pay the whole of the interest that would have been due if you'd let the loan run to its full term.

Who would want a mortgage on those terms? Buy a house, sign up to a 25 year mortgage, and if you sell the house or remortgage after 7 years, you've still got to pay the interest on the remaining 18 years of mortgage, even though you won't be borrowing the money for that time? You'd have to be crazy to borrow for a house on those terms.

I think what you're saying is that you'd like banks to offer mortgages where you can borrow money on a repayment deal for 25 years, and get out after 7 years having only paid 7/25 of the interest. Why would a bank want to agree to that? You're asking them to let you have the big loan (at the front end of the term) for the same price as the small loan (years later when it's nearly paid off). The bank would have to be crazy to agree to that.

The only way you can get a mortgage with an interest burden that's the same per month at the beginning and the end of the mortgage is to borrow interest only. Then your loan isn't reducing, and your interest will stay that same (if rates don't change). Not sure that's exactly going to help you in your stated aim of paying off the loan faster, though.

CLAPTON

wotsthat wrote: »

It's close enough. Just substitute with exponent, index or power if you're offended.

if interest were indeed compounded e.g. if no repayments were being made, then the answer would be different.
One could then accurately and truly say the interest was compounded.


why dumb down when it is wrong and fails to distinguish between two very different situations.

wotsthat

CLAPTON wrote: »

if interest were indeed compounded e.g. if no repayments were being made, then the answer would be different.
One could then accurately and truly say the interest was compounded.


why dumb down when it is wrong and fails to distinguish between two very different situations.

The dumbed down answer is that interest is weighted towards the start of a loan because the amount outstanding is bigger.

Talking about the exponential relationship between debt outstanding and time is far from dumbed down.

Arguing about whether compound, exponent, index or power should be used is splitting hairs.

CLAPTON

wotsthat wrote: »

The dumbed down answer is that interest is weighted towards the start of a loan because the amount outstanding is bigger.

Talking about the exponential relationship between debt outstanding and time is far from dumbed down.

Arguing about whether compound, exponent, index or power should be used is splitting hairs.

being wrong is dumbed down

IveSeenTheLight

Spidernick wrote: »

Madness! If house prices increase at a uniform rate then all it means is that it's a wider gap for that next rung up the ladder - simple maths really!

I've shown a number of times and a long time ago how increasing prices can speed up the move to the next level of property.

Simplistically putting it.
Trying to move from a £100k flat to a £200k home, with only 10% equity, means they need to save up and additional £10k deposit on top of the equity to maintain the 10% deposit for the home.

If the flat increased to £150, then they have £60k deposit, which would provide a 20% deposit for the home, without having to save any additional deposit.
to get the same 20% deposit on the £200k property, they would have needed to save up an additional £30k whilst living in the flat.

The difference in mortgage repayments would be £333 per month on a 4% mortgage or 7.5 years savings

Now, yes, they are borrowing more, but many people factor that in to getting the next rung 7.5 years earlier and fixing in any future HPI

the_flying_pig

IveSeenTheLight wrote: »

I've shown a number of times and a long time ago how increasing prices can speed up the move to the next level of property.

Simplistically putting it.
Trying to move from a £100k flat to a £200k home, with only 10% equity, means they need to save up and additional £10k deposit on top of the equity to maintain the 10% deposit for the home.

If the flat increased to £150, then they have £60k deposit, which would provide a 20% deposit for the home, without having to save any additional deposit.
to get the same 20% deposit on the £200k property, they would have needed to save up an additional £30k whilst living in the flat.

The difference in mortgage repayments would be £333 per month on a 4% mortgage or 7.5 years savings

Now, yes, they are borrowing more, but many people factor that in to getting the next rung 7.5 years earlier and fixing in any future HPI

see my post #27.

what are you saying about the extra debt - that it's secondary to LTV considerations or just that it doesn't matter at all??

without HPI your hypothetical bod needs to borrow £190 to upscale. imagine he earns £50k a year. a £190k loan needs an income multiple of 3.8.


with HPI your hypothetical bod needs to borrow £240 to upscale. imagine he earns £50k a year. a £240k loan needs an income multiple of 4.8, which he may well not be granted.

CLAPTON

IveSeenTheLight wrote: »

I've shown a number of times and a long time ago how increasing prices can speed up the move to the next level of property.

Simplistically putting it.
Trying to move from a £100k flat to a £200k home, with only 10% equity, means they need to save up and additional £10k deposit on top of the equity to maintain the 10% deposit for the home.

If the flat increased to £150, then they have £60k deposit, which would provide a 20% deposit for the home, without having to save any additional deposit.
to get the same 20% deposit on the £200k property, they would have needed to save up an additional £30k whilst living in the flat.

The difference in mortgage repayments would be £333 per month on a 4% mortgage or 7.5 years savings

Now, yes, they are borrowing more, but many people factor that in to getting the next rung 7.5 years earlier and fixing in any future HPI

if you are comparing two properties one at 100k and one at 200k
and then assuming the 100k rises to 150k then surely you would assume the 200k rises to 300k?

System

Here's a real example of the benefits of HPI:

In 1976 I lived in rented accommodation and possessed £1000.
I bought a small maisonette in London for £9,000, with a mortgage of £8,000.

In 1981 I sold the maisonette for £20,000 and bought a house nearby for £30,000, with a £20,000 mortgage.

In 1984 I sold the house for £60,000, and moved to the country, buying a house outright with no mortgage for £30,000.

So in 1975 I possessed £1,000 and no house. Today I have a large house with land pushing my assets into the Inheritance Tax bracket.
Am I better off?
What has caused that, if not house price inflation?

andrewmp

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.

I don't think you understand this, there's no way they could charge you less interest at first, because you owe more at first. The more you pay off, the less you owe, therefore the less interest you'll pay (rates being equal).

How could they possibly say "we'll let you pay less interest at first" and we'll make up for it later? How would that even benefit the borrower, they'd only pay more later if they were to stay anyway, if they didn't stay, then the lender would lose out. You pay interest on what you owe, your payments are fixed, each month, the proportion of interest you pay reduces until near the end you'll pay hardly any interest (because you owe hardly anything) - but the payment remains the same.

The alternative would be a fixed capital repayment plus interest, this would mean mortgage payments would start off high and reduce over time.