Lender steering applicant to interest only mortgage


A

Anthony R. Gold

This is merely a reflection of the fact that with an interest only
mortgage the principal balance remains unchanged, whereas with a
capital repayment mortgage it redeuces gradually to 0. The total
interest payable is proportional to the average principal balance
outstanding during the term of the mortgage.

I should also add that interest paid by the borrower is not the same
as the lender's profit.
I believe Graham only implied that the lender's profit would be proportional
to the interest paid. Is that not be correct, to a good approximation?
 
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C

Clank

John Silver said:
It appears from watching Channel 4 News on Thursday that the media are
already on the side of those who will be in the shit.
I hope that they remember that that their own financial pages were giving
such schemes glowing write ups in the 70'sand 80's.
John.
To be fair, I suspect anyone who has ever bought a mortgage has been
through the experience of being lied to by sales staff.

Personally, about six years ago I was told by an HSBC 'advisor' that I
didn't need a tracker mortgage because - and I quote - their "standard
variable rate will always track base rate closely anyway, because they have
to remain competitive."

Fortunately, I was bright enough to ignore this 'advice' and went elsewhere
to get a base rate +0.5% tracker with no collar. I've no idea what HSBC's
SVR is now, but I'll wager it's more than 1%.


On the balance of probabilities, I'd guess anyone who claims to have been
mis-sold a pension almost certainly was.
 
R

RobertL

Probably because it makes them more money. Imagine a £100,000 mortgage
over 20 years at 5% interest (for simplicity assume that the interest
rate does not change over the term of the mortgage).
For an interest only mortgage the borrower will pay back 20x£5000 in
interest plus £100,000 capital, a total of £200,000 at maturity.
For a repayment mortgage the repayment would be 240x£659.96, a total of
£158,390.40.
So for an interest only mortgage the lender would make nearly twice as
much profit than on a repayment mortgage.
But the lender of the repayment mortgage gets the capital back steadily during the term and he can lend it out to someone else. If the interest ratesare the same then it makes no difference to the lender; he always gets £5000 per year as long as he lends the money again as soon as he gets each repayment in.

Robert
 
A

Anthony R. Gold

But the lender of the repayment mortgage gets the capital back steadily during the term and he can lend it out to someone else. If the interest rates are the same then it makes no difference to the lender; he always gets £5000 per year as long as he lends the money again as soon as he gets each repayment in.
But that assumes the lender that is limited only by capital and not by any
shortage of qualified borrowers. Are there any like that?
 
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C

Cliff Frisby

S wrote:

It was a lobng time ago but I think it was alway limited to 2 people.
What, marriage? Yes, probably, at least in this country.

But mortgage interest relief? No, it wasn't always limited to 2 people.
Pre-1988, Each *single* person really did have their own separate
allowance, but a married couple had one single person's allowance between
them.

http://www.hmrc.gov.uk/statistics/mortgage.htm
 

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