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One thing I rarely see mentioned is that, with increasing uncertainty around employment, and the likelyhood that I might be forced to move increasing, the real

One thing I rarely see mentioned is that, with increasing uncertainty around employment, and the likelyhood that I might be forced to move increasing, the real interest rate on home purchases is much higher than the headline rate. I have read that the average american moves every five years. Assuming they are on a 30 year loan of $100,000 at, say, 3%, they have paid $14,202.61 interest on $11,093.64 of principal, for an effective interest rate of 120%. 120%, and that's at 3%! This is due to the fact that mortgages are structured as constant payments, which means early on they are mostly interest and only later is the principal being paid down. If someone moves and rolls right into another 30 year loan, they start the process all over again. Our financial system appears to be an elaborate mechanism for moving people into debt slavery. If you read "n The Law of Civilization and Decay" you can see the same dynamics at work in the late Roman empire.

cpncrunch 11y ago
Your calculations don't make sense. You're calculating interest on the % of principal paid off, instead of the total principal. Also, if you move to another house, there's nothing to say you have to get another 30 year loan. You could get a 20 year loan instead. You could also refinance your house with a new 30-year loan after 10 years.
- carsongross 11y ago
  You can shorten the duration of loans, which is a great idea, but typically only in big jumps: 15 or 10 year loans. You can also pay down the loan faster or put up bigger down payments. Again, great stuff. However, many people don't do this and end up spending a lifetime in the early parts of a fixed-payment amortization schedule, where the realized interest rates are very, very high.
  - maxerickson 11y ago
    The number you use for principle doesn't make any sense. People are buying housing with a mortgage, not just the house (that is, living in a house for 5 years is worth more than $0). It's very true that mortgages are expensive and it's unfortunate that we have priced our housing market to 30 years of payments.

cpncrunch 11y ago

Your calculations don't make sense. You're calculating interest on the % of principal paid off, instead of the total principal. Also, if you move to another house, there's nothing to say you have to get another 30 year loan. You could get a 20 year loan instead. You could also refinance your house with a new 30-year loan after 10 years.

carsongross 11y ago
You can shorten the duration of loans, which is a great idea, but typically only in big jumps: 15 or 10 year loans. You can also pay down the loan faster or put up bigger down payments. Again, great stuff. However, many people don't do this and end up spending a lifetime in the early parts of a fixed-payment amortization schedule, where the realized interest rates are very, very high.
- maxerickson 11y ago
  The number you use for principle doesn't make any sense. People are buying housing with a mortgage, not just the house (that is, living in a house for 5 years is worth more than $0). It's very true that mortgages are expensive and it's unfortunate that we have priced our housing market to 30 years of payments.