I must be missing something in my repayment v interest only calc:

dunstonh

lazer-zxr said:

Hoenir said:

lazer-zxr said:

What am I missing here?

You are expecting to pay interest at 4.2% and receive interest at 4.5% over 15 years. 

Yes, that's my assumption.
Current 5yr offer to me is 4.2%

On receipt of interest, S&P 500 ... avg 8% returns, savings accounts around 5% ..... I thought the 4.5% receipt was prudent.

So, you are not taking into account the periods when there will be 50-70% losses? or the once in a century event of a near 90% loss?

You are also looking at recent performance where US equities have been the main driver and you had sterling fall in value against the dollar.          You need to look at periods when sterling rises and/or US is not the main area.

For example, the first decade of this millennium, US equity was lower after 10 years than it was at the start.

ian1246

.lazer-zxr said:

I'm coming up to remortgage, and wonder if I'm missing something in my calculation on Interest only v repayment.

Outside of the inherent risk around Interest only , what am I missing? it makes interest only + investment look like a no brainer?

£184k mortgage on £380 valuation. 15year 

4.2% mortgage.

Scenario 1:

Repayment £1388 per month, which is £16.6k per year, and over 15 years, this is £250k.

Scenario 2:

If I went interest only:

Mortgage interest payments £649 per month, which is £7.8k per year, and over 15 years this is £117k

I'd then have to purchase the house, which is £184k ..... so total cost to me is £117k + £184k = £301k

However, the spare monthly amount of £739 (being the difference between £1388 repayment mortgage and £649 interest payment), invested for 15 years at 4.5% compounding, I would have £190k in  savings.

So net cost to me in Scenario 2, is £190k, less my £301k cost, = £111k

So scenario 1 costs me £250k, and I have a house after 15 years.

Scenario 2 costs me £111k and I have a house after 15 years.

What am I missing here?

Your maths is flawed.

15 years of £739 investments = £133,020. 

£133,020 + £117,000 interest = £250,020 capital cost.... with the hope of making £190,000 investment return so you'd be £6020 better off overall at the end of the 15 year period, assuming your investments perform as hoped.