Sir, - With reference to Mr O'Malley's timely letter (March 7th), I have to say that in my innocence I had understood a mortgage repayment to be a combination of interest and capital. Every year, depending on the term of the loan, a proportion of the capital was paid back, plus the interest on the remainder. Thus the payments became less with each year. In practice they are equal payments, and this is at the root of the matter.
When the simple mortgage outlined above is summed and averaged to give equal payments over the term of the loan, the interest is no longer simple. This is because a greater proportion of the interest is now contained in the early payments and is subject to abuse.
This has reached an unreasonable proportion for Mr O'Malley's case "A" in which, when we allow for the £1,000 paid back, the holders have been paying £683. Approximately every year for 30 years on a loan of £3,500/£2,500: a simple interest of about 19.1 per cent. No doubt the financial institutions would put forward a lesser and more sophisticated percentage, but what is wrong with simple interest? - Yours, etc.,
Killester,
Dublin 5.