FIG 1 Here AEG% p.a. = 0% and D% = 4%. The true rate of interest I% has been set at a fixed rate of 3% which was the average for the UK from 1970 to 2002.
Notice how each year's payment is valued as a '% of income' and by adding up those values we get the total 'true cost / value' repaid of 4.80 years' income, or 36.2% more than the 3.55 years' income originally borrowed.
Also note that the first year cost 30% of income (as defined by the lender) and the final year cost was 11.26% of income. The annual payments fall by 4% every year.
FIG 2 - Wealth transfer to borrower at true interest rate of -3% when using an LP fixed interest rate, unchanging AEG% p.a.
NOTE THAT 4.23 Years' income was lent but 3.20 Years' income was repaid.
Note that the final year's repayment was so low at 4.38% of a years' income. D% = AEG% for level payments and that is why it costs so little.
FIG 3 - LP Mortgage repaid with True interest I% = 0%
NOTE how the amount of income lent is the amount of income repaid.
NOTE THAT 4.23 Years' income was lent but 3.20 Years' income was repaid.
Note that the final year's repayment was so low at 4.38% of a years' income. D% = AEG% for level payments and that is why it costs so little.
FIG 3 - LP Mortgage repaid with True interest I% = 0%
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