Re: First year of repayment mortgage, WTF!

On Thu, 14 Sep 2006 14:34:42 GMT, Ronald Raygun
<no.spam@xxxxxxxxxxxxxxxxxxxxx> wrote:

Peter Saxton wrote:

On Thu, 14 Sep 2006 13:18:42 GMT, Ronald Raygun
<no.spam@xxxxxxxxxxxxxxxxxxxxx> wrote:
If it says how much you've paid, and how much interest has been charged,
then the difference is how much capital you've paid off.

Why? Using your logic you could be paying off the capital and owing
the interest.

No, you're talking rubbish.

Also, it will say what your balance outstanding is at the end of the year.
It will also say what your balance was at the start of the year. Except
inasmuch as the balance is contributed to by interest on interest not paid
when due, all of it will be capital. The difference between the start and
end balances, therefore, is how much capital you've paid off.

No. It's how much the balance has reduced.

Generally the balance *is* all capital, if you've been paying all the
interest when due.

If you don't pay anything
in a year what is the figure brought forward to the next year? Is it
partly capital and partly interest or is it the amount outstanding?

Both. It is the amount outstanding, which *is* partly capital and partly
interest. The distinction is too unimportant to bother splitting into two
explicit chunks because you can think of unpaid interest as being added to
the capital in the same way a further advance would be: You're just
borrowing more on the mortgage to pay the interest due on it!

I don't know of any mortgage lender who keeps track of what is
outstanding split by interest and capital.

I didn't say there was, but some of them get close, because their
rules let you borrow back capital already repaid. To make this
possible, that is to say to make it possible to know what your
re-borrowing limit is, they actually tell you on the statement what
your "available reserve", or whatever they call it, is. Generally
this is simply equal to the difference between your original amount
borrowed and your current balance outstanding.


I suspect you're merely taking exception to the word "capital".
What we are (well, I am, at any rate) really talking about is paying
down a *debt* which is initially equal to the capital sum borrowed,
and which normally shrinks with each payment by the excess of that
payment over the interest charged for that period (which in turn is
equal to the debt outstanding during that period multiplied by the
interest rate for that period).

But where there are irregularities the debt can fluctuate. If a
payment is missed, the debt grows by the amount of the interest
component of that payment, yet you might not like to think of it
as the *capital* having grown. The distinction is immaterial.

I've explained the situation perfectly adequately. I don't agree with
your logic and I don't know anyone who does other than you.


--
Peter Saxton from London
peter@xxxxxxxxxxxxxxxxx
.

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