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Re: It's a proud moment for the UK!

By: Cactus Flower in ALEA | Recommend this post (0)
Thu, 04 Dec 14 7:40 PM | 29 view(s)
Boardmark this board | The Trust Matrix 		Msg. 16399 of 54959
(This msg. is a reply to 16398 by faul)
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hi doma,

i take it you wish to set aside the conversation about the war bond on which it appears simple interest was paid annually.

the bondholder may decide to reinvest the interest in other instruments. so they would hope to collect a compounded return. but the principle of the bond itself and the accompanying interest diminishes with the value of money.

perhaps this misunderstanding is why your views about government indebtedness are what they are. And why the markets seem untroubled by US debt (hence the low interest rate). They understand that the US only pays simple interest on its multi-trillion debt.

so long as the economy can support the debt burden, there's little to worry about. at current rates of interest, the annual cost of US debt is supportable. You can tell that because the amount of debt is no longer increasing as a percentage of GDP. this means they are not issuing new debt to pay interest.

if inflation reappears, then the value of the principle and the interest will decrease relative to GDP.

the thing that would upset the apple cart is deflation.


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Re: It's a proud moment for the UK!
By: faul in ALEA
Thu, 04 Dec 14 7:24 PM 		Msg. 16398 of 54959


"Certain lenders have responded to criticism over the annual compounding of interest by calculating interest more frequently, on a monthly or daily basis"

Herein lies one of the great mortgage controversies of our times. The annually reviewed interest system implies that monthly repayments of capital are not taken into account until the end of the annual accounting period. The borrower is effectively paying interest on capital that has been repaid progressively over the year.

Irregular additional lump sum payments will likewise not be reflected immediately in reduced interest payments. For example, if you make a one-off repayment of £1,000 on top of your regular monthly repayments, you will have to wait until the end of the annual accounting period before that £1,000 is deducted from the amount that you still owe and before interest is recalculated. In the meanwhile, you will continue to pay interest as if you had never paid the additional £1,000.

If you have a home loan where interest is calculated annually, your best course of action is to time one-off capital repayments as close to the end of the annual accounting period as possible.

Monthly computation of interest

Certain lenders have responded to criticism over the annual compounding of interest by calculating interest more frequently, on a monthly or daily basis

http://www.telegraph.co.uk/finance/personalfinance/2955757/Capital-repayment-options.html.

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