I put together this spreadsheet during my afternoon coffee break. All you have to do is play around with the yellow boxes and try different scenarios and you’ll see the difference between a split mortgage and interest only.
Before getting started, it’s important to note that a split mortgage is split in two ways, firstly it is divided by a certain percentage, but secondly it is split in terms of structure, the non warehoused portion must be a repayment loan and the warehoused bit is interest only where the interest is compounding against the borrower.
Something interesting jumped out at me, because of how amortization works, and due to low margin trackers, at least half of the loans in existence won’t be any better off on a split mortgage, they’d be better off on interest only in terms of cash-flow, and depending on your view of inflation, being on interest only long term might be about the same as a debt write down.
You’ll see this in the present value cells which are also calculated. …