Earlier quoted context omitted.
I have many reservations and am very critical of the financial system. But the concept of interest on loans is not a "scam'. The interest in it's simplest form is just a value appreciation of the time value of money [1]. Would you rather have $100 today, or $100 next month? How about $100 today vs $102 next month? Still rather in the today camp? How about $105 next month? That is the interest. It is the value derivat…
I didn't say interest on a loan was a scam I think compound interest on mortgages is. A fixed price interest would make sense like you borrow £100 , you pay back £110. 10% interest. But my understanding on a compound interest mortgage is the bank says something like 2% interest. and they take the £100 and x by 1.02 and just spam ='s on the calculator until the actual interest percentage is like 180%. You shouldn't ha…
If I take out a £100000 loan with an APR of 2% and pay it back in full at the end of the first year, then the total amount I pay back is £102000. Apart from any early repayment charges, the original total term is irrelevant.
When taking out such a large sum, over such a duration for buying your home, the total amount to repay is not the important aspect. It's not like taking out a loan to buy a car or a holiday. You don't have the option of choosing between buying now with a loan, or saving up for a few more months or years to buy without one.
Affordability of the regular repayments over the duration of the loan is the key thing.
There is absolutely no way I would take out a loan of that size with fixed interest in the way you describe. It would be far too expensive, and give the bank too much power.
I'm relying on the fact that I can make large overpayments in order to own my home outright halfway through the original term. That couldn't happen without an annual interest rate. In fact, the most logical thing to do in that situation is to stretch the loan out for as long as possible, so that inflation makes your repayments cheaper.
For a rough example -
Imagine you bought a house for £100K 5 years ago, the interest is such that over 20 years it will cost £150K total (e.g. 3.5% over 25 years).
You have probably paid about 30K, taking about £15K off the capital.
You sell the house for the same amount you bought it. With annual interest, you owe the bank £85K, you give them that, and use the spare 15K for your next home.
With a fixed price, you still owe the bank £120K. You give them the £100K you got from selling the house, and you somehow have to find £20K to pay them the rest.