Originally posted by counterterrorist

Year--------30yr mortgage --------15yr mortgage
1------------580%--------------------161%
3------------182%--------------------51%
5------------102%--------------------28%

Yr---interest pd-------principal pd-------balance owed
1----$8,949.89--------$1,842.02----------$148,157.98
3----$8,715.66--------$2,076.25----------$144,126.11
5----$8,451.65--------$2,340.46----------$139,581.54

While I agree that banks shouldn't be printing money, this idea of "front loading" is really a silly thing to say.

What you're showing here is that $8,949 is 580% of the $1,842 that you are paying in principal? I don't have a calculator handy, but you have to think of the logic of the situation.

If you want to have a certain amount as your mortgage payment, it is going to work this way.

Let's say you have a $100,000 loan at 6%, but instead of monthly payments (for easier calulations for me right now), you have one YEARLY payment. Well you could pay $6,000 every year and not pay any principal, or you could have a $7,000 payment every year. So after your first payment you would owe $99,000(Paid 6000 + 1000) Next year, your interest is only $5,400, so your $7,000 payment knocks off $1,600. Isn't this just common sense?

Your last payment would be something like
Balance: 6900
Interest: 100
(or whatever, you get the idea)

this isn't a changing interest rate, it's a changing balance.

The only other way to have a 30 year loan would be to start with a higher payment and have it decrease over time.

For example, take the 100,000 loan, split it into 30. So you are going to pay $3,333 per year principal, and pay it all off over 30 years. Your interest the first year is still 6,000, so you would start with a $9,333 payment.

In year 30 you would owe $3,333 and you would make about a 3500 payment.

If you really want a loan like this, just go ahead and make a 9,333 payment, instead of a 7,000 payment. you will just pay it off sooner, because more and more will be going to principal instead of interest

the concept of "front loading" is absurd

[edit on 17-5-2008 by JoeTheThird]

You are all looking at this in the wrong manner. I used to get worked up about the banks and their games. Tried to stay away from financing anything. Then I figured out the real secret. I play their game to the full extent now. I'm full in, in every way possible. I even have gone as far as converting to almost 100% online banking. That's right, they don't even have to waste their time printing money for my anymore. I try to get in on every new plan they come up with. At the start of any new scam by the bank, they make great deals to folks like me, in order to look appealing to everybody else. I've gotten standard fees removed from morgages, bumps on interest points for savings accounts, reduced utility bills for paying online, I even refined my auto loan through a special offer (took a year off my loan, dropped my payment by $100 a month, and I didn't pay a thing to do it), all because I play their game. Last month I saved appox. $300 on bills and fees that everybody else has to pay. The bottom line is that whether you admit it or not, your lives are affected, if no controlled by this game. I say take the control back. I pay 4 bills every month, mortgage, auto, water bill(only because my rural town doesn't support online payments), and a credit card. All my normal utility bills go on my credit card and my card balance is payed off every month to $0. I get huge benefits on my credit card for not only paying it off every month but since a high dollar amount is transacted they love me and continually offer me other credits and bonuses. They say the average person is 2-4 paychecks away from broke, meaning most could survive up to a month if they lost their job. I could go about 7-8 months and that's if I don't cut back on my frivolous spending,(what can I say, I like good food and fun toys). If I had to I could stretch my reserves for over a year and not miss a single payment on any bill.

Worst case, the bank system that treats me so well completely collapses. In that case I will have to dip into the ol' secret stash in the back yard. After all, I'm not a complete idiot, I trust the banks about as far as I can throw the fat suits that run them.

OK this is going to be hard to explain.

posted by TheBadge
why do they make it hard to just simply get a house and just live?

That it right there. The real conspiracy is that this stuff isn't taught to everyone. In high school, we teach everyone people to figure out compound interest on savings but how many Americans really need to know how much they will have in 20 years if they saved $1000?

For most Americans, high school is about the only exposure they will ever have to economic arithmetic. Every person on earth will have a mortgage or a car loan or credit card debt and no one I know can figure out the payments or interest rates without using an amortization calculator - and some can't do it even then.

posted by Yarcofin
I fail to see where you are getting this 580% from... can you please show your calcuations?

What he means is that the loan is front-loaded with interest because of way interest works on loans. Every year you pay about $11k on the loan - that stays constant. The first year almost $9k of that goes to pay interest and only a little over $2k goes into paying your principle.

This means that after a full 15 years of paying on your 30 year loan you have managed to pay down less than 29% of the total principle but you have paid over 68% of all the interest on the loan.

The banks make almost all their profit in the beginning of the loan but have a lien on your estate for the entire term. In fact, just 14 years after you take out your 30year loan you have paid the bank enough money that they have broken-even even without seizing your property.

posted by verylowfrequency
Don't forget they're taking a risk and they don't always make money as we now know.

The risk is not as high as they make it out to be so the interest should not be as high.
Look at it this way: (using the same $150k loan at 6% for 30yr)
After 2 years of payments, you can no longer continue and default on your loan. The value of your house has also dropped a whopping 10% ($15k) but has the bank lost anything?
NO!
The bank has profited $17,786 off of their investment AND they have the property to resell. If they get the current depressed rate for the house then the bank is still ahead by almost $3k. While not bank breaking it is a real profit none-the-less.

The person who takes all the risk is the homeowner and not the bank. That fact is what makes the level of interest they charge so obscene. You take all the risk, they make all of the money.

Jon

So the total you are paying back is $325,000 on a $150,000 home. Except for a few localized areas i do not think there has been a time in US history where a $150,000 home wasn't worth more than that $325,000 30 years later. Ditto on the dollar. No time in history where the dollar wasn't worth less than half of what it was worth 30 years earlier.

More than likely that $150,000 home is worth more like $500,000 30 years later. So you made $175,000 in 3 years using the banks money. All they get is 6% interest a year.

Let's say instead of borrowing you paid the whole $150,000 up front. Are you better off? Worst 30 year return of the overall stock market is about 8%. The average is 10%. If you put the money in the market and took the 10,800 per year from those investments, at 8% you would end up with $285,000 30 years later. At 10% you would end up with $840,000.

Is borrowing money instead of owning outright really such a bad deal?

Originally posted by Voxel
The banks make almost all their profit in the beginning of the loan but have a lien on your estate for the entire term. In fact, just 14 years after you take out your 30year loan you have paid the bank enough money that they have broken-even even without seizing your property.

Well, that explains why Greenspan and Co. thought that ARMs for the poor were such a great idea; so did they not realize that by raising rates so soon, they were cutting their own throats?

I mean, if they could have waited a few years, they'd have expanded the amount of "money" in the world severalfold, instead of holding debt in goofy "derivatives" that is 10x Earth's GDP (maybe some of our neighbors in this arm of the galaxy can give us a loan? )

How is this news??????????????????????????????????????????????????
This is how banks make money, have been doing it since they first came about!i'm still flabergasted as to how ye don't know how the financial institutes of the world work!

I have not had to deal with banks and loans, but I already hate them. What would happen if they just kept things simple: have a set interest charge for the amount loaned, up to but no more than 50% of the loan amount. The longer the duration of the loan the higher the interest. The total interest amount divided equally over the duration of the loan. Doesn't that seem fair? Its much simpler, and the bank makes money. And with the simplicity of it, people don't have to worry about losing their homes when rates change etc, and banks don't have to deal with that, which to me would save operating costs.

I must admit im surprised that people are surprised how interest works.

Also, its all well and good to sit here saying its a scam, and we shouldnt fall for it etc etc, and that would all be fine if we could pay for everything we need with money we actually have.

But when you need to buy a house, or anything like that, how do you propose we do that without falling for the 'bankers scam'?

Not everyone has a lazy $200,000 stuffed in a mattress.


Oh, and does anyone complain when we 'scam' the bank back? Those crazy suckers.... they create money out of nothing and GIVE IT TO US, just because we keep our money with them. The fools!



EDIT: to the poster above. It makes sense that interest isnt 'capped' at 50% (or whatever) of the total amount.

Using the initial posts example. you take a loan our for 100,000, and for the first few years most of your payments cover interest. So in 8 or 9 years youd be at your 50% cap, and still owe 70 or 80,000.

Then you could just pay absolute minimum repayments, and still be paying it back 50 years later. But hey, youre not earning any interest, so who cares?
Meanwhile youre still a risk to the lender, especially if you drag it out and drop dead before its payed back.

[edit on 18-5-2008 by HeHasNoName]

Well, of course WE wear all the risk and the banks wear very little.

If they loan us $100,000 and we default, theyll repossess and sell our home and car. Sure, they might not recap the full 100,000, but theyll get most of it. Meanwhile we are out 100,000, or a home and car.

But again, what are you going to do? Where else are you going to get piles of money to buy a home?
You either get involved in this 'scam' or you rent a house for your entire life.

Its not like anyone out there is offering interest free loans, that we can take all the time we need to repay.

Originally posted by HeHasNoName
You either get involved in this 'scam' or you rent a house for your entire life.

Or you realize that you live in a society where injustices against the masses only continue as long as the masses accept them.

Jon

This really hits home to me as this is the exact to the T scenario I am in. I have a $150,000 loan on my home, and I just bought a new car. The car I put half down up front for low monthly payments....didn't tell them that until the last second..hehe. Then the home we put 3/4 of the total down at closing and had to do the $150,000 loan at a 30 yr. 6% fixed rate.

I was always under the impression that if you pay your monthly mortgage it was good practice to pay the monthly principle with it as well to avoid this trap.Then you are paying off the home sooner than 30 years. I could be completely wrong here ...I don't know.

Originally posted by HeHasNoName
I must admit im surprised that people are surprised how interest works.

Also, its all well and good to sit here saying its a scam, and we shouldnt fall for it etc etc, and that would all be fine if we could pay for everything we need with money we actually have.

But when you need to buy a house, or anything like that, how do you propose we do that without falling for the 'bankers scam'?

Not everyone has a lazy $200,000 stuffed in a mattress.

Money is created. Either the government can create it, or the bank can create it with interest. Either way, the stuff is made of paper which comes from trees.


There have been institutions in history which create money, interest free. Some even spent it into the economy, while not even expecting any of it back! Why? Because it built something for the community, for society.


This is actually how money worked after this country was formed. Back then, whenever you produced something of value and took it to market, you got a receipt for it. Money was created when something of value was created. Today, you can't create something of value until you have money. The situation is backwards.


"Borrowing" money from banks isn't necessary to finance anything. Whether by government, or by banks, money is created. It isn't gold. It doesn't fall from the sky like rain. It is created. I keep saying that because people just don't get it. MONEY IS CREATED. Would you rather the government create it (as the constitution mandates) without interest, or a bank create it, and charge an arm and a leg for it?


The fact that a bank charges interest on nothing is bad enough, but what makes the whole crime worse is that the public now depends on the banks permission to prosper. Bankers decide what gets financed. Not the people. In other words, the only projects funded in our "democratic" society are those that the bankers want to exist.


While those of you who are firmly in the mindset that financing is all about profit will find it hard to believe... I'm going to tell you that it is entirely possible for an institution to finance a non-profit organization, and society will benefit as a whole.


When money creation is in the hands of bankers, no non-profit human activity is worthwhile. Not education, not any kind of healthcare which puts human life before profit, not research into cures (just research into treatment)... not research into free energy (just research into energy that is sold)... not anything human society needs today.


Profit is killing us. The greed in this world has turned us all against each other, and made enemies of everyone.


An interest-free banking system CAN exist. It's been done before. A person CAN go to the government and take out a loan to start a business, only promising to pay back the loan itself or even part or none of the loan if the government says that's ok! What does the government lose when money is created from paper? Nothing! What does the government gain when money is loaned to people trying to start a business? A chance for a more prosperous society!


Wow have we all been brainwashed for so long. We've spent our entire lives working for money. This is the only way we've ever seen it come or go, so we assume that this is the way it always has come or gone. But ask yourself... where do all those dollars come from? It's not a question of the chicken or the egg... it's very logical and quite simple. There is a beginning. I ask you... who starts it? And what possibility of abuse do those who have the privilege of creating money have the potential to exploit? Questions most of us never ask...


I remember when I woke up to how the money system is used to systematically starve, exploit, steal, and corrupt society. It is truly evil. But it's not the way it has to be. We can change it any time... all we have to do is change our minds.




[edit on 18-5-2008 by ianr5741]

On a side note... how many readers out there know that before the Federal Reserve existed, interest rates were determined by market conditions. There was not a committee of men with their hands on that "lever"... raising and lowering interest rates on a whim.


Today we hear that interest rates are this or that number... as if it is normal. We expect the Fed to set interest rates. Why? Because that's what we've always seen.


I will tell you however, that this situation is entirely unnatural. Also corrupt.


There used to be a time when a bank could set its own interest rates however it wanted. Until the Fed came about, and the gold standard was abandoned. Then, money became paper, and you don't have to charge much interest on paper to show a profit. So, the Fed could artificially lower interest rates to get business to come in for loans. With such low rates, why use your own money?


But in the long run, it just got more and more people into debt. This is what the banks wanted. Because with debt comes foreclosure, and with foreclosure comes real property. Real wealth. The whole money thing is just a distraction, and a tool to get people's eyes off the real prize: assets. Money is nothing to these people, even though for you and I it is our lifeblood. This gives a whole new meaning to rich. This is how the "international banking elite" got so astronomically wealthy. They are the men behind the curtain, pulling the levers of society.


When one small group of people determine how much interest everyone else in the country pays, don't you think that's a monopoly of power? Why can't a bank loan out money for less than the prime rate if it wants to? Because of the way the system has been designed. They don't want anyone loaning out money for less, they want everyone playing their game only.


For maximum profit, there can be no one to compete with. Otherwise the loaning institutions would have to try and keep rates low to get business, and the Fed would be much less powerful in the financial arena as a whole. Today, the whole Federal Reserve banking system is under one umbrella, and one organzation sets the interest rate for everyone.