Jun

27

all about mortgages: repayment and interest only

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There are a large number of different sorts of mortgage products available in the UK. In essence a mortgage is a loan secured on your house that the bank or society expect you to pay back with interest. The defining characteristics of any mortgage product are how you are expected to pay it back, and how the interest rate alters during the course of the mortgage. Today I’m just going to talk about paying back the mortgage.

There are really only two ways that you pay back a mortgage. If you take out a repayment mortgage, you pay it back a little at a time. If you take out an interest only mortgage you pay it all back at the end. In either case you pay interest only on the amount that is currently outstanding.

I think that can stand repeating, so I’ll say it again. There is really only one difference between a repayment mortgage and an interest only mortgage. With the former you pay off the original amount borrowed a little at a time (in each monthly mortgage payment). With the latter you pay off none of the amount originally borrowed, until you get to the end of the term, at which point the bank or building society expects the whole sum.

If you borrow £100,000 at 6% for 25 years with a repayment mortgage, the bank or building society will expect you to pay £644.30 every month for 25 years. In the first month, you will pay off £144.30 of the £100,000 originally borrowed, and this amount will increase every month until in the final month you pay the final £641.98. In total you will pay £644.30 x 12 x 25 = £193,290.

If you borrow £100,000 on an interest only mortgage for 25 years at 6% AER, the bank or building society will expect you to pay £500 to them every month for 25 years and then they will expect you to pay them £100,000. So all together you would pay a total of £500 x 12 x 25 + £100,000 = £150,000 + £100,000 = £250,000.

Given that you pay so much more overall to have an interest only mortgage, why would you use one?

Well, to end up with the £100,000 at the end of the 25 years needed to pay off the mortgage, you need to do more than just pay the mortgage payment each month. If you invested the difference between the two payments (£144.30) you could make it grow into enough at the end of the 25 years to cover both the £100,000 originally borrowed which needs to be paid back, and a little more on the side. All you need to do is find an investment that grows more than 6% per month on average, after tax. The biggest downside is that you are taking on a greater amount of risk in search of higher gains - especially as that greater amount of risk involves the home that you live in.

Jun

26

Response to ‘What Would Happen If All Christians Tithed/Gave More?’

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Free Money Finance posed the question ‘What Would Happen If All Christians Tithed/Gave More?’ as part of his regular (and excellent) Sunday slot on Money and the Bible. You should really read the post, but I’ll summarise by saying that FMF was commenting on someone else who had worked out how much their church gave as a proportion of the local average income. Unsurprisingly it was less than 10%. The thrust of FMF’s argument is that the world could or would be a better place if Christians gave more.

Usually in this series, the comments, are mainly from other believers (in the sense that if I had to guess I’d say the majority are ‘born again’). This post was unusual because it generated comments from non-believers, most of whom did not appear to feel that if Christians gave more it would have the effect that suggested - to the seeming bewilderment of some of the Christian commenters.

I too feel that if all Christians tithed (that is donated 10% of their income to their church) it wouldn’t have as much impact as it could on the problems of the world. And thats because there are essentially two types of worthwhile donating which I’ll call community giving and charitable giving. By community giving, I mean the donation of money that supports your own community - something that you could or would directly gain benefit from. Things like donating to the local art museum, school fundraising and political parties. Churches have to do a lot of this because they don’t often earn money. Outside of state-supported churches, most religious organisations rely on donations to pay for the upkeep of their buildings, the contstruction of new facilities and to pay their ministers and other professional staff. If they didn’t use monetary donations, they would still need donations in kind.

Charitable giving, on the other hand, I define as a donation of money that supports someone or something else without direct benefit to yourself. Things like donating money to prevent hunger in regions of famine, the local soup kitchen, or even saving the dolphins. This type of donation needs to be increased (both personally and nationally) to try to solve the problems of poverty and environmental damage. Churches collectively do this with some of their money, for example by running soup kitchens or supporting charitable work in the third world. Much more of it is done by religious and non-religious people outside of organised structures though. For example, lots of the money that comes through Cafod (the Catholic Agency for Overseas Development) doesn’t come from the collection box but from individual donations.

The third main use that churches have for money is to proselytise. Almost all Christian denominations fund missionary work (as do other religions). As an atheist I think that at best this money is at wasted (especially if they come and knock on my door) and at worst (as happened in the 19th century) it is used for cultural genocide.

I think there is a misconception as to what churches (and other religious organisations) actually do and would like to do with the money they collect from their members. I imagine that many religious people feel that churches spend a higher proportion of their money on charitable work than they actually do and I reckon many people who don’t like organised religions feels that if churches received more money a large proportion of it would be spent on community work - building themselves better facilities and so on - and on missionary work.

In reality, religious organisations are expensive to run, old churches are often difficult to heat, new ones cost money to build, salaries only increase and so a lot of money is currently spent within their own religious community. On the other hand, religious groups are largely composed of thoughtful compassionate people who would like to do more charitable work.

On the whole if Christians all gave more, I think that then more money would be spent on charitable work and that the proportion of church money spent on charitable work would increase. This would be good and would probably counterbalance the associated likely increase in missionary work. Society at large should encourage more giving from Christians, just as it should encourage more giving from atheists, Moslems, Buddhists, Wiccans, etc, etc. FMF himself essentially said in his response to the commenters that anyone giving more is a good thing and I wholeheartedly agree.

Jun

25

plonkee competition winner

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The winner of the first ever plonkee money competition is cleverdude. He was drawn out of the hat (actually a spud trooper helmet) and has elected to receive a gift certificate for amazon.com which will be winging its way to him shortly.

From his entry, the reasons that donating to charity improves his well being are:

  1. supporting his clean language by having a swear jar (the money goes to a pregnancy crisis charity)
  2. supporting his choice in music by donating to a nice local radio station
  3. supporting his values by donating to a university he approves of that has familial ties

Sounds like some excellent uses for spare money.

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