tag:blogger.com,1999:blog-2826531655042170344.post8053717118634561686..comments2024-03-26T11:29:52.986+00:00Comments on Economic Incentives: ‘New Beginning’ Mortgage ProposalSeamushttp://www.blogger.com/profile/15679299530222667673noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2826531655042170344.post-5463278258934052342012-01-26T12:04:15.182+00:002012-01-26T12:04:15.182+00:00have a mortgage but i am only paying interest at t...have a mortgage but i am only paying interest at the mo and that has being going on 2yrs now , im after having meetings with permo many times asking them about forgetting about or (writing off) the INTEREST because iv paid them €100,000 over the last 10yrs asked them to give me a break and let me pay them the capital but they won't they will only pay over a longer time which will make me about 70yrs of age or DEAD, ANYBODY OUT THERE CAN HELP ME BEFORE I PUT A ROPE AROUND MY NECK???Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-40103847082249229562011-10-19T18:37:12.910+01:002011-10-19T18:37:12.910+01:00Hi Ahura,
They are useful numbers. I will have a...Hi Ahura,<br /><br />They are useful numbers. I will have a look at that calculator and throw a few numbers into it.<br /><br />I don't think the New Beginning proposals are based on any repayment schedule. Rather they are based on what is "affordable" - 35% of net disposable income.<br /><br />Their starting point is €840. This is the amount that can service the interest on a 235k loan at 4.29%. They then "shelve" the other 80k.<br /><br />Of course the borrower isn't really repaying the 235k. The repayment rises in line with disposable income at a maximum of 3% per annum and this will allow some capital to be repaid, albeit very slowly. <br /><br />I estimate that at the end of 10 years on the New Beginnings payments a loan of €235k would have fallen to €218k. In ten years the borrower would have repaid 17k.<br /><br />If the repayment is supposed to jump to 49% of disposable income at the start of year 11 as you show I presume that it would be capped at 35% of disposable income. This is probably what they mean when they say the payment will rise to a maximum of €1,572. It looks like it will only rise to this is it is less than 35% of net disposable income.<br /><br />This would mean that they amount to be repaid under the New Beginning plan would be even less as I assumed a rise to €1,572 from the start of year 11 but it could take a lot longer for the payments to reach that level.<br /><br />If the borrower did actually repay €1,572 each month for 21 years then the remaining balance on a loan of 298k (218k + 80k) would be 91k. New Beginning claim the borrower will own the house but they will still owe 91k.<br /><br />And this is excluding 10 years on interest on the 80k that is shelved. At 4.29% this would be this would be 34k. If we add this to the 91k, then the cost of the New Beginning proposal is substantial. <br /><br />I might try to flesh out these numbers later on.Seamus Coffeyhttp://economic-incentives.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-1092712008665076672011-10-18T16:47:40.985+01:002011-10-18T16:47:40.985+01:00Hi Seamus,
Hopefully new beginnings will provide ...Hi Seamus,<br /><br />Hopefully new beginnings will provide the exact calculations. I'm struggling to see how the 235k 31yr 4.29% mortgage has a starting payment of Eur 840. The annual increasing payments sounds like a Graduated Payment Mortgage. This is a link to a calculator for this type of mortgage: http://www.decisionaide.com/MPCalculators/GraduatedPaymentMtg/GraduatedPaymentMtg.asp<br /><br />Using a loan term of 30yr, the intial payment should be eur 934 rather than 840. Importantly after 10yrs the payment is eur 1,255. Adding a 21yr 80k loan (after ten years) which has a monthly payment of Eur482, you get a monthly payment of eur1,738. This is a bit more than the max (New Beginnings) payment of Eur 1,572.<br /><br />Note: I've only done some quick calcs, so apologies if my numbers are wrong.<br /><br />One quirk, using the New Beginnings numbers, is the 35% of disposable income versus the position after 10yrs. If we assume Ken's income increases 3% for ten years, a mortgage payment of eur1,572 is about 49% of disposable income.Ahura Mnoreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-53312152404559167602011-10-18T11:02:46.036+01:002011-10-18T11:02:46.036+01:00Hi Anonymous,
I not sure the important is that si...Hi Anonymous,<br /><br />I not sure the important is that significant. In the example above the person should make €570,000 of mortgage repayments. Under the proposal they will make €512,000 of payments.<br /><br />It doesn't really matter where this is on capital or interest, the effect is exactly the same. The borrower is making €58,000 less repayments.<br /><br />Borrowers don't make two loan repayments to the bank. They make just one. <br /><br />I do think you have a point in how the proposal can be presented, plus a scheme based on reduced interest payments has greater flexibility. If a portion of the capital was written off now it is straightforward but is also permanent.<br /><br />A scheme based on reduced interest payments for a period has greater flexibility. It can have reduced payments like the New Beginning proposal and can also have increased payments later in the term if some of the cost is to be recouped.<br /><br />The moral outrage may be less as a scheme based on interest can be viewed as changing the cost (interest rate) on borrowing rather than giving someone the money for free which would be the perception of a capital write-down.<br /><br />No one was complaining when the interest rates on our EU loans were reduced in the past few months, but nor do we think we are getting the money for free either.<br /><br />The distinction between capital and interest relief is important, but remember that the net effect to the borrower (and the cost to the bank) is the same under either scheme.Seamus Coffeyhttp://economic-incentives.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2826531655042170344.post-69358057286669346492011-10-18T10:35:00.254+01:002011-10-18T10:35:00.254+01:00seamus, it might be better if "debt forgivene...seamus, it might be better if "debt forgiveness" was distinguished from "principal forgiveness". <br /><br />The latter is fuelling misguided "moral outrage" argument as seen for example with anti-principal forgiveness hawks such as brendan burgess of askaboutmoney.com.Anonymousnoreply@blogger.com