jsmithe
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Post by jsmithe on Nov 14, 2016 21:28:12 GMT
I played with Ablrate recently and cashed out after a month.
The loan paid back interest and some capital monthly which SS only does with the interest.
Logic dictates on a 12% loan SS would be paying 12% until the end but Ablrate would be paying 6% of the original investment by halfway though the loan.
I find this interesting as you are better off with SS, unless I'm missing something?
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fp
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Post by fp on Nov 14, 2016 21:34:25 GMT
I played with Ablrate recently and cashed out after a month. The loan paid back interest and some capital monthly which SS only does with the interest. Logic dictates on a 12% loan SS would be paying 12% until the end but Ablrate would be paying 6% of the original investment by halfway though the loan. I find this interesting as you are better off with SS, unless I'm missing something? The logical approach is to re-invest your money as you receive your payments, thus keeping your return in double figures, the (possible) bonus with ABL is that your exposure to each loan was reducing on a monthly basis.
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hazellend
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Post by hazellend on Nov 14, 2016 21:41:47 GMT
I played with Ablrate recently and cashed out after a month. The loan paid back interest and some capital monthly which SS only does with the interest. Logic dictates on a 12% loan SS would be paying 12% until the end but Ablrate would be paying 6% of the original investment by halfway though the loan. I find this interesting as you are better off with SS, unless I'm missing something? Ablrate do amortising and interest only loans. Your comment may mislead people so just thought I would clarify. I prefer ablrate to ss, mostly because I can get as much as I want in each loan but their deals have been good.
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Post by bracknellboy on Nov 14, 2016 21:53:09 GMT
I played with Ablrate recently and cashed out after a month. The loan paid back interest and some capital monthly which SS only does with the interest. Logic dictates on a 12% loan SS would be paying 12% until the end but Ablrate would be paying 6% of the original investment by halfway though the loan. I find this interesting as you are better off with SS, unless I'm missing something? Firstly, whether ABL would be paying "6% of the original investment by halfway" will probably depend on the period of the loan (without doing the maths). That's because - at least normally - amortising loans are set to flat payments through the life, and therefore front end payments are interest loaded and back end are capital repayment loaded (relatively). So you would not expect half of the capital to have been repaid by halfway through the loan. (Some smart alec will now agree with the second part, but point out that the percentage paid off by 50% through is the same regardless of duration, however intuition rather than maths tells me this is not the case; I'm even inclined to think that it is dependent both on duration and interest rate applied, esp. as the 'special case' of a loan with a 0% rate would be 50% paid off by the halfway point). EDIT: Doh, of course the %age paid off by halfway through is dependent on both duration and interest rate. Secondly, this does not mean you are 'better off' with interest only loans. With amortising you are receiving the rate on the remainder of capital invested. With IO you are receiving the rate on the remainder of capital invested - which just happens to be the same as the initial investment. In the former you have had a percentage of your capital returned, which you are of course free to re-invest elsewhere. [OK, you may have some cash drag/lost opportunity cost while you get it reinvested].
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mikes1531
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Post by mikes1531 on Nov 14, 2016 22:43:24 GMT
Firstly, whether ABL would be paying "6% of the original investment by halfway" will probably depend on the period of the loan (without doing the maths). That's because - at least normally - amortising loans are set to flat payments through the life, and therefore front end payments are interest loaded and back end are capital repayment loaded (relatively). So you would not expect half of the capital to have been repaid by halfway through the loan. (Some smart alec will now agree with the second part, but point out that the percentage paid off by 50% through is the same regardless of duration, however intuition rather than maths tells me this is not the case; I'm even inclined to think that it is dependent both on duration and interest rate applied... Secondly, this does not mean you are 'better off' with interest only loans. With amortising you are receiving the rate on the remainder of capital invested. With IO you are receiving the rate on the remainder of capital invested - which just happens to be the same as the initial investment. In the former you have had a percentage of your capital returned, which you are of course free to re-invest elsewhere. [OK, you may have some cash drag/lost opportunity cost while you get it reinvested]. As bracknellboy has concluded, it is dependent both on duration and interest rate applied, though IIRC the interest rate has more influence than the loan duration. As a 'rule of thumb', you won't be too far wrong assuming the loan principal will have been reduced by about a third at the half-way point in the term. As for which is better... Interest-only loans mean you don't have to find a new home for returned capital, which can be helpful in a decreasing interest rate environment and not helpful in an increasing interest rate environment. Amortising loans mean that the loan LTV decreases with time -- so a loan that started out as 70% LTV will be have an LTV of somewhere around 50% halfway through the loan term -- and that should increase the security of the loan. I prefer amortising loans for that reason.
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guff
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Post by guff on Nov 15, 2016 10:17:17 GMT
Amortising loans are also useful for diversifying.
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Post by GSV3MIaC on Nov 15, 2016 11:44:57 GMT
You also stand more chance of finding out fast when things go awry with an amortising loan.
Too many of the 'bullet' loans have the interest withheld at the start, so the borrower could be in Rio on day2, with all the capital, and you don't find out until the capital repayment doesn't happen in X months or years time (because the interest keeps being fed back nicely every month from the retained pot).
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TitoPuente
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Post by TitoPuente on Nov 15, 2016 21:50:07 GMT
You also stand more chance of finding out fast when things go awry with an amortising loan. Too many of the 'bullet' loans have the interest withheld at the start, so the borrower could be in Rio on day2, with all the capital, and you don't find out until the capital repayment doesn't happen in X months or years time (because the interest keeps being fed back nicely every month from the retained pot). Well, I would have chosen Rio thirty years ago but now I think that Punta del Este or Playa del Carmen end up being better in terms of amenities.
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