4 ms·

+ rapacious compound interest with the end-result of extracting 30yrs of labor?

by Kinnard 10y ago

xrange 10y ago
3.34% as of 2016Jun29 for a fixed 30 year mortgage. http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-180608774.html http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-1...
- distances 10y ago
  Or 3 month Euribor is now -0.281%, so with say 1.2% margin for bank the current interest would be 0.92%. Obviously with no guarantee for it staying that low. http://www.euribor-rates.eu http://www.euribor-rates.eu
  - nimos 10y ago
    You can't compare 3 month term interbank loans to a 30 year term mortgage. 30 year tbills are around 2.25%.
    - distances 10y ago
      That wasn't a comparison to the 30 year fixed mortgage, just brought up an alternative. And this is not theoretical, the usual way to get a mortgage around here is Euribor with a margin for the bank added, practically no-one gets decades-long fixed mortgages.
      - rmah 10y ago
        A 3mo interbank rate is not an alternative to a 30 yr consumer mortgage.
        distances 10y ago
        Not sure what you mean -- as I said, that's what people do around here: interbank rate + bank marginal. Fixed 30-year mortgages are very rare.
- brightball 10y ago
  2.875 on a 15 year here
dpark 10y ago
The proposed alternative doesn't get rid of that. It just hides it in the rent cost. No one's going to hand someone a house and say "pay me back over 30 years without any interest" unless they're running a charity. Making a transaction more complex doesn't change the fundamentals. You either save and buy, or take a loan out and buy, or you don't buy. Anything else involves some form of charity.
- Kinnard 10y ago
  I think market dynamics could produce a situation where interest is close to zero. Besides that lending with interest is illegal in several societies.
  - dpark 10y ago
    Mortgage rates are close to zero already. What scenario do you imagine would drive them even closer to zero? And in such a scenario, why would anyone bother making loans? Market dynamics are not magic. If it's not profitable to lend money, no one will. The only way I could see rates hitting zero would be if the government started charging interest on money sitting in banks. Such an event would not be a sign of good housing opportunities so much as a sign of significant economic struggles.
    - Kinnard 10y ago
      https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Islamic_banking_and_finance "Sharia prohibits acceptance of specific interest or fees for loans of money (known as riba, or usury), whether the payment is fixed or floating . . . As of 2014, sharia compliant financial institutions represented approximately 1% of total world assets. By 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles and as of 2014 total assets of around $2 trillion were sharia-compliant. According to Ernst & Young, although Islamic Banking still makes up only a fraction of the banking assets of Muslims, it has been growing faster than banking assets as a whole, growing at an annual rate of 17.6% between 2009 and 2013, and is projected to grow by an average of 19.7% a year to 2018." Just one example.
MichaelBurge 10y ago
If you had $300,000 in the bank, would you loan it out to some Joe for a measly 3.25% interest? I sure wouldn't, even if God himself[1] appeared in a fire next to me and guaranteed this loan. There's better ways to spend your money. The only reason the banks accept such a piddling sum is because they immediately sell the loan to a government-run corporation(or maybe skim the interest for a year or two). In the 1800s before the government stepped in, you had to put 50% down, your interest rates were more like 11%, and while the loan was amortized over 30 years it ended after 5 years, so you'd have a 25-years balloon payment at the end. That's about what it would take for me to consider that loan worth it. The modern term for a loan that isn't sold to the government is a 'portfolio loan', and some smaller banks or hard money lenders will give it to you. Expect 1800s-style loan terms for an 1800s-style loan. The only time I'd loan money out at 3.25% if I were expecting you to default, and wanted to get your 20% down payment for free when I foreclosed as the noteholder. [1] Okay, I might actually take it in that case. But not because it's a good deal on paper.
- no_flags 10y ago
  "The only reason the banks accept such a piddling sum is because they immediately sell the loan to a government-run corporation(or maybe skim the interest for a year or two)." Being ignorant of the situation, I went to fact check this statement and was blown away by how true it is. I'm flabbergasted at the amount of involvement the US government has in the mortage market. More reading if anyone is interested: 1. https://www.frbatlanta.org/banking/publications/financial-update/financial_update-vol_14_no_1-fannie_mae_and_freddie_mac.aspx https://www.frbatlanta.org/banking/publications/financial-up... (Somewhat outdated but mostly good info) 2. http://blogs.reuters.com/bethany-mclean/2013/08/20/getting-government-out-of-the-mortgage-business-is-harder-than-it-looks/ http://blogs.reuters.com/bethany-mclean/2013/08/20/getting-g... 3. http://www.npr.org/2015/03/24/395119065/as-economy-rebounds-government-still-plays-role-in-mortgage-business http://www.npr.org/2015/03/24/395119065/as-economy-rebounds-... 4. http://www.npr.org/sections/money/2015/04/21/401259676/who-owns-fannie-mae-and-freddie-mac http://www.npr.org/sections/money/2015/04/21/401259676/who-o...

+ rapacious compound interest with the end-result of extracting 30yrs of labor?

by Kinnard 10y ago

+ rapacious compound interest with the end-result of extracting 30yrs of labor?

3.34% as of 2016Jun29 for a fixed 30 year mortgage. http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-180608774.html http://finance.yahoo.com/news/30-fixed-mortgage-rates-fall-1...

distances 10y ago
Or 3 month Euribor is now -0.281%, so with say 1.2% margin for bank the current interest would be 0.92%. Obviously with no guarantee for it staying that low. http://www.euribor-rates.eu http://www.euribor-rates.eu
- nimos 10y ago
  You can't compare 3 month term interbank loans to a 30 year term mortgage. 30 year tbills are around 2.25%.
  - distances 10y ago
    That wasn't a comparison to the 30 year fixed mortgage, just brought up an alternative. And this is not theoretical, the usual way to get a mortgage around here is Euribor with a margin for the bank added, practically no-one gets decades-long fixed mortgages.
    - rmah 10y ago
      A 3mo interbank rate is not an alternative to a 30 yr consumer mortgage.
      - distances 10y ago
        Not sure what you mean -- as I said, that's what people do around here: interbank rate + bank marginal. Fixed 30-year mortgages are very rare.
brightball 10y ago
2.875 on a 15 year here

dpark 10y ago

The proposed alternative doesn't get rid of that. It just hides it in the rent cost. No one's going to hand someone a house and say "pay me back over 30 years without any interest" unless they're running a charity. Making a transaction more complex doesn't change the fundamentals. You either save and buy, or take a loan out and buy, or you don't buy. Anything else involves some form of charity.

Kinnard 10y ago
I think market dynamics could produce a situation where interest is close to zero. Besides that lending with interest is illegal in several societies.
- dpark 10y ago
  Mortgage rates are close to zero already. What scenario do you imagine would drive them even closer to zero? And in such a scenario, why would anyone bother making loans? Market dynamics are not magic. If it's not profitable to lend money, no one will. The only way I could see rates hitting zero would be if the government started charging interest on money sitting in banks. Such an event would not be a sign of good housing opportunities so much as a sign of significant economic struggles.
  - Kinnard 10y ago
    https://en.wikipedia.org/wiki/Islamic_banking_and_finance https://en.wikipedia.org/wiki/Islamic_banking_and_finance "Sharia prohibits acceptance of specific interest or fees for loans of money (known as riba, or usury), whether the payment is fixed or floating . . . As of 2014, sharia compliant financial institutions represented approximately 1% of total world assets. By 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles and as of 2014 total assets of around $2 trillion were sharia-compliant. According to Ernst & Young, although Islamic Banking still makes up only a fraction of the banking assets of Muslims, it has been growing faster than banking assets as a whole, growing at an annual rate of 17.6% between 2009 and 2013, and is projected to grow by an average of 19.7% a year to 2018." Just one example.

MichaelBurge 10y ago

If you had $300,000 in the bank, would you loan it out to some Joe for a measly 3.25% interest? I sure wouldn't, even if God himself[1] appeared in a fire next to me and guaranteed this loan. There's better ways to spend your money. The only reason the banks accept such a piddling sum is because they immediately sell the loan to a government-run corporation(or maybe skim the interest for a year or two). In the 1800s before the government stepped in, you had to put 50% down, your interest rates were more like 11%, and while the loan was amortized over 30 years it ended after 5 years, so you'd have a 25-years balloon payment at the end. That's about what it would take for me to consider that loan worth it. The modern term for a loan that isn't sold to the government is a 'portfolio loan', and some smaller banks or hard money lenders will give it to you. Expect 1800s-style loan terms for an 1800s-style loan. The only time I'd loan money out at 3.25% if I were expecting you to default, and wanted to get your 20% down payment for free when I foreclosed as the noteholder. [1] Okay, I might actually take it in that case. But not because it's a good deal on paper.

no_flags 10y ago
"The only reason the banks accept such a piddling sum is because they immediately sell the loan to a government-run corporation(or maybe skim the interest for a year or two)." Being ignorant of the situation, I went to fact check this statement and was blown away by how true it is. I'm flabbergasted at the amount of involvement the US government has in the mortage market. More reading if anyone is interested: 1. https://www.frbatlanta.org/banking/publications/financial-update/financial_update-vol_14_no_1-fannie_mae_and_freddie_mac.aspx https://www.frbatlanta.org/banking/publications/financial-up... (Somewhat outdated but mostly good info) 2. http://blogs.reuters.com/bethany-mclean/2013/08/20/getting-government-out-of-the-mortgage-business-is-harder-than-it-looks/ http://blogs.reuters.com/bethany-mclean/2013/08/20/getting-g... 3. http://www.npr.org/2015/03/24/395119065/as-economy-rebounds-government-still-plays-role-in-mortgage-business http://www.npr.org/2015/03/24/395119065/as-economy-rebounds-... 4. http://www.npr.org/sections/money/2015/04/21/401259676/who-owns-fannie-mae-and-freddie-mac http://www.npr.org/sections/money/2015/04/21/401259676/who-o...