100% Mortgage with **** credit history?

[Hainey]

gjc10212 said:

What is statute of limitations with regards to not paying debt? If 6 years passes and the debtor can't be contacted (or refuses to be contacted) are these debts wiped off?

Incredibly, yes. In Scotland, it's only 5 years.

[BL Fanboy]

walm said:

Sharted said:

I borrow £100k over 25 years on repayment. Early repayments are mainly interest but later into the term I'm only paying interest on a quickly reducing amount of capital therefore paying less interest over the 25 years.

You borrow £100k over 25 years on interest only. You pay interest on the full amount from day one to the last payment 25 years later.

This example makes no sense - sorry - it has been a long day for me!

On repayment you pay the same amount every time. It is a static defined constant amount.

Sure OF COURSE your debt declines over time.
That’s true when you make savings too!

To repeat – your net balance at the end will be ZERO in both of our examples.
We will have both spent exactly the same each month.

It makes absolutely no difference.

Having daily interest just means the bank isn’t ripping you off by keeping your money for a few days without paying interest on it if the payment happened to fall on a Friday say.
As soon as you invest in the FTSE your money goes to work!! Same thing.

Some quick calcs on 100k over 25 years @ 3%

Repayment would cost £142239 and interest only £174961

So, with repayment you are up £32722 over the 25 years over interest only.

Most people choose interest only because they cant afford repayment and just hope for a miracle in 25 years to help pay it off at the end of the loan.

If you can afford a repayment mortgage, the question is, with the lower monthly payment of interest only VS repayment can you make a parallel investment using the difference to beat £32722 over the 25 years?

Does that make sense?

So this fictional 3% 100K mortgage would be £474 repayment vs £250 interest only. That's £224 a month to invest elsewhere.

Even just putting that in to a non interest account would give you £67200 thus beating repayment.

If you could get 3% on this 224 pm saving using interest only, then you'd get 99k or thereabouts.

You have to factor in inflation and its effect over 25 years - perhaps that the killer. Don't know?

I suppose so long as you can match inflation, then you'd be up £67200 (saving the difference) minus £32722 (repayments advantage) = £34478 better off overall with interest only over 25 years.

If you could be bothered. If you fancy the risk. If you want an average of £1300 per year better off.



If nothing changed. lol.

Edited by BL Fanboy on Thursday 30th April 12:38

[walm]

BL Fanboy said:

So this fictional 3% 100K mortgage would be £474 repayment vs £250 interest only. That's £224 a month to invest elsewhere.

Even just putting that in to a non interest account would give you £67200 thus beating repayment.

I am guessing you don’t work in finance.

If you just hold onto the £224 a month you end up with £67,200 – yes.
But you still owe £100k on the mortgage at the end (whereas putting into repayment you owe nothing).
So net, you are £32,800 worse off.

This isn’t rocket science.
If you can save that £224 at a compound interest rate of 3% per annum then you will exactly match the repayment mortgage.
That’s just how the maths works.

And my simple point is that outperforming 3% (or the current far lower rates) is not a particularly high bar when the long term trend in equities is 6-7%.

(Inflation has nothing to do with it other than traditionally being a benefit to equity prices.)

[BL Fanboy]

walm said:

I am guessing you don’t work in finance.

If you just hold onto the £224 a month you end up with £67,200 – yes.
But you still owe £100k on the mortgage at the end (whereas putting into repayment you owe nothing).
So net, you are £32,800 worse off.

This isn’t rocket science.
If you can save that £224 at a compound interest rate of 3% per annum then you will exactly match the repayment mortgage.
That’s just how the maths works.

And my simple point is that outperforming 3% (or the current far lower rates) is not a particularly high bar when the long term trend in equities is 6-7%.

(Inflation has nothing to do with it other than traditionally being a benefit to equity prices.)

Gotcha. Thanks Walm:-)

Just wish I had the confidence to invest in equities then - something I know little about and wouldn't know how to get into.

Probably best to not dabble in something I know nothing about as proved by my post lol.

[walm]

BL Fanboy said:

Gotcha. Thanks Walm:-)

Just wish I had the confidence to invest in equities then - something I know little about and wouldn't know how to get into.

Probably best to not dabble in something I know nothing about as proved by my post lol.

In fairness, I am huge fan of repayment mortgages because they force saving diligence onto people AND give you 100% security in the returns you get.

However, I still think there is good reason to at least consider other savings options.

Putting a little aside every month into a stocks & shares ISA in something simple and cheap like a tracker fund can really help.

"Investing in equities" sounds very scary but it doesn't have to be.
Start here and have a google.
https://www.fool.co.uk/investing-basics/isas-and-i...

Having said that we are a long way into a rising market so dumping every penny you have into the FTSE today could end in tears.
You need to have a very long term outlook and try to save regularly, IMHO.

Note I am NOT an IFA, so this doesn't qualify as regulated investment advice and historical performance is no guarantee of future returns!