Objective Developer Posted July 5, 2007 Share Posted July 5, 2007 I’ve just re-read the thread and realised that the OP is a moron, sorry to have stoked the 'stupid' fire… Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 Including you it would appear. Definition of compound interest:Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods You have lost me here!!. Prior periods dont exist, you are talking about compound interest calculated on cash you have in hand, what you earnt on it prior to making the investment, and what return you will get over a given period. A mortgage by definition in most cases is around 90%, so your triffling 10% deposit and the interest you earnt prior on it is not even worth the time to calculate. If of course you are getting 100% per annum on what would have been your deposit, then of course its a different story, you are one of the worlds greatest investors and would never need a mortgage. Quote Link to comment Share on other sites More sharing options...
Objective Developer Posted July 5, 2007 Share Posted July 5, 2007 You have lost me here!!.Prior periods dont exist, you are talking about compound interest calculated on cash you have in hand, what you earnt on it prior to making the investment, and what return you will get over a given period. A mortgage by definition in most cases is around 90%, so your triffling 10% deposit and the interest you earnt prior on it is not even worth the time to calculate. If of course you are getting 100% per annum on what would have been your deposit, then of course its a different story, you are one of the worlds greatest investors and would never need a mortgage. Unsurprisingly, you seemed to have missed the point. Quote Link to comment Share on other sites More sharing options...
OzzMosiz Posted July 5, 2007 Share Posted July 5, 2007 I see the interest rate rise has got you rattled Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 25 year fixed rate headline loan at 5%Find me someone who has that... Better to owe little at massive interest rates then a lot at low interest rates... Interest rates head both ways, loans only go down..... Simple, remember prices dropping already over good chunks... flats static for years now... New builds with crazy discounts and cash backs... all gooooooooooooooooooood:) Oh dear. Let me explain, have you ever been to MFI and wondered why they always offer 50% price reduction. Well its simply because people are suckers, nobody would pay the 100% price, unless they were stark raving mad. You could buy a SmallBone Kitchen for that price, hand carved and painted by virgins underwater in Maritius. New Build discounts are sales speak for suggesting a price, and then knocking 25% off of it. Ever heard the saying "How long is a piece of string" ? Quote Link to comment Share on other sites More sharing options...
Willy Weasel Posted July 5, 2007 Share Posted July 5, 2007 You have lost me here!!.Prior periods dont exist, you are talking about compound interest calculated on cash you have in hand, what you earnt on it prior to making the investment, and what return you will get over a given period. A mortgage by definition in most cases is around 90%, so your triffling 10% deposit and the interest you earnt prior on it is not even worth the time to calculate. If of course you are getting 100% per annum on what would have been your deposit, then of course its a different story, you are one of the worlds greatest investors and would never need a mortgage. Compound interest is interest on interest. If you don't pay off the interest on the capital each month then the interest payments increase because you are not only paying interest on the original loan but also the unpaid interest Quote Link to comment Share on other sites More sharing options...
Objective Developer Posted July 5, 2007 Share Posted July 5, 2007 Compound interest is interest on interest. If you don't pay off the interest on the capital each month then the interest payments increase because you are not only paying interest on the original loan but also the unpaid interest He won’t get that. It’s not in his interest to understand things… I’ll get my coat. Quote Link to comment Share on other sites More sharing options...
Unexpected Posted July 5, 2007 Share Posted July 5, 2007 Well I'm new to all this HPC and interest rate rise thing. I only have around a 100k deposit saved up so I guess thats me screwed, especially if interest rates go up more and there's an HPC. Will my 100k fall to 50k if interest rates go up much more? OMG I hope the guys in charge know what they're doing. Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 Compound interest is interest on interest. If you don't pay off the interest on the capital each month then the interest payments increase because you are not only paying interest on the original loan but also the unpaid interest You still lose me here!!! Of course you make repayments, thats the concept of amortization, and if you dont make the payments like renting, you would be out on your backside. Now back to business, if you are paying 800pcm dead money each month in rent, you would be foolish not to get into the market today on a fixed rate for the term of 25 years. The longer you wait, the more you are going to pay in higher rates. For sure prices will drop, but not enough to make it feasible to hold off. By waiting, I have shown you will pay higher monthly payments, and over 140k in extra payments over the term. Quote Link to comment Share on other sites More sharing options...
Objective Developer Posted July 5, 2007 Share Posted July 5, 2007 By waiting, I have shown you will pay higher monthly payments, and over 140k in extra payments over the term. No, you haven't. Quote Link to comment Share on other sites More sharing options...
joey Posted July 5, 2007 Share Posted July 5, 2007 (edited) Seeing as its yet another rainy day, and I am on a week off I thought I would put my mind to some calculations to illustrate what I knew, but could not be bothered to work out in the past.The subject is Compound Interest, something people appear to have very little grasp of these days. Supposing you wish to buy a property in an area where you can find a job that pays a wage that you could live on. You would have to spend around 200k on a property, for sure if you live in the North of England and work for a local council you are a different beast as you earn an above average salary, and live in a deprived area whereby you can pick up a house for little more than the price of a postage stamp. However we are talking real people, who have to work for a real living here, and who are not subsidised by hard working British Families who are the taxpayers of this nation. Not Gordons Goffers who earn huge sums, and are protected by Gordons offshore legislation. Had you purchased in 2006, you would not have had to shop around to find a mortgage fixed for the term of 25 years at 5%. House prices would have to drop 50% to be comparable to having borrowed last year at 5% when rates are 12% So you borrow 200k @ 5%, your repayments would be £1,169p pcm, and you would repay in total £350,754 If you wait until the end of this year you may well be looking at interest rates of 8%, so for the same money you would be paying 1,543p pcm and your total repayment over the term of 25yrs would be £463,000. That mistake has cost you £112,246 and that pain of higher mortgage payments each month, an additional £374pcm Ah, I hear you cry, higher interest rates will make people reduce the price of their properties, so you will not need to borrow 200k. Unfortunately had you done your sums you would find that a 200k house would have to drop to £150,000 with an interest rate of 8%, to be comparable to my first illustration with house price of 200k and an interest rate of 5%. I think 8% is a conservative estimate, if things turn sour rates would most likely rise to 12% to be of any use in stemming runaway inflation, which is their primary intention when they raise rates. It could well be the case that to buy today with a rate of 6% fixed for the term, which is fequently available, could well worth be taking. You are not trying get rid a load of new builds are you. There is no need to rush to buy now loads of properties are standing idly, another nail has gone in the coffin today. I agree buy if you get an absolute bargain a 50% of a repossesion otherwise do your homework, not only look at what you can afford but also what you can't afford as these prices will come down. Remember a house is only worth what someone is willing to pay for it. No Buyers Lots of Sellers Falling Market. Reseach your area for 6 months and take note of the prices and their drops. Know the market don't be conned by the EAs or developers they are only looking after theior own interests and will gladly sell you an overpriced lemon. Reseach the last crash. First time buyers were also priced out in 1988 and thought they may never own their own home . The crash was ugly but enabled FTBs to get back into the market. Edited July 5, 2007 by joey Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 No, you haven't. Well here it is again, feel free to illustrate why you disagree. Had you purchased in 2006, you would not have had to shop around to find a mortgage fixed for the term of 25 years at 5%. House prices would have to drop 50% to be comparable to having borrowed last year at 5% when rates are 12% So you borrow 200k @ 5%, your repayments would be £1,169p pcm, and you would repay in total £350,754 If you wait until the end of this year you may well be looking at interest rates of 8%, so for the same money you would be paying 1,543p pcm and your total repayment over the term of 25yrs would be £463,000. That mistake has cost you £112,246 and that pain of higher mortgage payments each month, an additional £374pcm Ah, I hear you cry, higher interest rates will make people reduce the price of their properties, so you will not need to borrow 200k. Unfortunately had you done your sums you would find that a 200k house would have to drop to £150,000 with an interest rate of 8%, to be comparable to my first illustration with house price of 200k and an interest rate of 5%. I think 8% is a conservative estimate, if things turn sour rates would most likely rise to 12% to be of any use in stemming runaway inflation, which is their primary intention when they raise rates. Quote Link to comment Share on other sites More sharing options...
sikejsudjek Posted July 5, 2007 Share Posted July 5, 2007 (edited) You are not trying get rid a load of new builds are you. There is no need to rush to buy now loads of properties are standing idly, another nail has gone in the coffin today. I agree buy if you get an absolute bargain a 50% of a repossesion otherwise do your homework, not only look at what you can afford but also what you can't afford as these prices will come down. Remember a house is only worth what someone is willing to pay for it. No Buyers Lots of Sellers Falling Market. Reseach your area for 6 months and take note of the prices and their drops. Know the market don't be conned by the EAs or developers they are only looking after theior own interests and will gladly sell you an overpriced lemon. Reseach the last crash. First time buyers were also priced out in 1988 and thought they may never own their own home . The crash was ugly but enabled FTBs to get back into the market. Exactly - I would argue today is not the time to buy. I expect a crash of up to 50% and lower interest rates afterwards during the resulting recession/depression. There is simply too much fiat money being created for this boom to end in anything other than bust. I'd rather have the savings (which you will get better interest on) than the debt. This has 1929 written all over it. See the Bank for International Settlement report. Edited July 5, 2007 by sikejsudjek Quote Link to comment Share on other sites More sharing options...
Unexpected Posted July 5, 2007 Share Posted July 5, 2007 I dont think your theory applies to people with decent deposits though LJ. That is what most on HPC are relying on I believe. Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 You are not trying get rid a load of new builds are you. There is no need to rush to buy now loads of properties are standing idly, another nail has gone in the coffin today. I agree buy if you get an absolute bargain a 50% of a repossesion otherwise do your homework, not only look at what you can afford but also what you can't afford as these prices will come down. Remember a house is only worth what someone is willing to pay for it. No Buyers Lots of Sellers Falling Market. Reseach your area for 6 months and take note of the prices and their drops. Know the market don't be conned by the EAs or developers they are only looking after theior own interests and will gladly sell you an overpriced lemon. Reseach the last crash. First time buyers were also priced out in 1988 and thought they may never own their own home . The crash was ugly but enabled FTBs to get back into the market. Please back up your words with hard figures. It took a collapse of the global markets and interest rates of 2% for FTB'ers to get back on. If you think you will see that again in your lifetime, you are one of the worlds greatest optomists. Rates will average out at 7%, and that is after hikes well above. For people putting of buying today, you will have to wait 14years and maybe more to return to todays prices/rates. Quote Link to comment Share on other sites More sharing options...
OurDayWillCome Posted July 5, 2007 Share Posted July 5, 2007 A 200k house would have to drop 25% to be comparable to having borrowed last year at 5% when rates are 8% - If interest rates hit 8% houses will drop much more than 25% A 200k house would have to drop 50% to be comparable to having borrowed last year at 5% when rates are 12% - If interest rates hit 12% houses will drop much more than 50% In the meantime I will continue saving and will be able to buy in a few years time without the need of a mortgage so I really hope rates hit 12% Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 I dont think your theory applies to people with decent deposits though LJ. That is what most on HPC are relying on I believe. Spot on, if you have hard cash earning 5%, then for sure its worth the wait, as rates increase so will your savings. However, there are not many people that can put down hard cash. Quote Link to comment Share on other sites More sharing options...
OurDayWillCome Posted July 5, 2007 Share Posted July 5, 2007 However, there are not many people that can put down hard cash. That's why if rates hit the levels you predict housing will drop much more than you are predicting. Quote Link to comment Share on other sites More sharing options...
joey Posted July 5, 2007 Share Posted July 5, 2007 Please back up your words with hard figures.It took a collapse of the global markets and interest rates of 2% for FTB'ers to get back on. If you think you will see that again in your lifetime, you are one of the worlds greatest optomists. Rates will average out at 7%, and that is after hikes well above. For people putting of buying today, you will have to wait 14years and maybe more to return to todays prices/rates. Your Title should be TODAY COULD BE YOUR ONLY CHANCE TO GET STUCK IN THE MARKET There are a few round here with rotting FOR SALE signs, these people are stuck and trying get out. You must live in a small hamlet somewhere and not see the reality of the Housing Fiasco we are in now. Hundreds of BTL speculators are stuck with their poxy new build flats which will half in price in the future. I recommend go out and do your homework. FOR SALE : FOR SALE : FOR SALE. and more properties on the market that is the truth. Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 (edited) Well I'm new to all this HPC and interest rate rise thing. I only have around a 100k deposit saved up so I guess thats me screwed, especially if interest rates go up more and there's an HPC. Will my 100k fall to 50k if interest rates go up much more? OMG I hope the guys in charge know what they're doing. Ok so the 200k house drops to 150k tommorow and interest rates are 12%. You therefore borrow 50k over 25years. Monthly repayments are £526.61p pcm on 25 year repayment mortgage, and will repay in total over the term £158,000 However you have put your 100k into the property, so you have lost that investment income. Supposing you would earn 8% interest if you saved that 100k in a bank, you would have earnt £749pcm, so add that loss onto your mortgage payments. In real terms your mortgage is costing you £1270pcm. So it would pay for you today to take the cheap money 100% loan for house at 6% fixed for the term, and leave your 100k invested. If rates rise, then so will your investment savings, and they will offset your mortgage payments which are fixed at 6%, your investment is not fixed so will rise to maybe 8% or even more. Edited July 5, 2007 by laurejon Quote Link to comment Share on other sites More sharing options...
laurejon Posted July 5, 2007 Author Share Posted July 5, 2007 Ok so the 200k house drops to 150k tommorow and interest rates are 12%.You therefore borrow 50k over 25years. Monthly repayments are £526.61p pcm on 25 year repayment mortgage, and will repay in total over the term £158,000 However you have put your 100k into the property, so you have lost that investment income. Supposing you would earn 8% interest if you saved that 100k in a bank, you would have earnt £749pcm, so add that loss onto your mortgage payments. In real terms your mortgage is costing you £1270pcm. So it would pay for you today to take the cheap money 100% loan for house at 6% fixed for the term, and leave your 100k invested. If rates rise, then so will your investment savings, and they will offset your mortgage payments which are fixed at 6%, your investment is not fixed so will rise to maybe 8% or even more. In fact, if you are paying rent of 800pcm or more then you would be mad not to snap up rates at 6% fixed for the term. Quote Link to comment Share on other sites More sharing options...
OurDayWillCome Posted July 5, 2007 Share Posted July 5, 2007 Ok so the 200k house drops to 150k tommorow and interest rates are 12%. Interest rate 12% - houses drop 25% Quote Link to comment Share on other sites More sharing options...
greengreen Posted July 5, 2007 Share Posted July 5, 2007 Laurejon, is the point that you are trying to make really about the relationship between: current interest rates and mortgages available now (or recently) on lower fixed rates versus your anticipated rate of rise of interest rates against the rate of fall in house prices. Are you suggesting that the rate of increase in interest rates will not directly correlate against house prices falls, therefore making houses effectively still expensive in the future? Quote Link to comment Share on other sites More sharing options...
Yes Sir Posted July 5, 2007 Share Posted July 5, 2007 Peak Oil & Gas is the fly in the ointment. Or rather the ointment around the fly. It will be the worsening energy crises (hey, if we have to war for it, we're in a fecking crises!) that tips the market ass over tit. Quote Link to comment Share on other sites More sharing options...
stonethecrows Posted July 5, 2007 Share Posted July 5, 2007 Can someone pls point me in the direction of these lenders who will give me 5% for 25 years Quote Link to comment Share on other sites More sharing options...
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