4 ms·

Just seems like a massive scam thats become the norm. You're paying off interest on the first month, as if you've already had the money for 20 years. They take

Just seems like a massive scam thats become the norm. You're paying off interest on the first month, as if you've already had the money for 20 years. They take liberties from day one.

cko 7y ago
You do already have the money for 20 years - that’s what the lender “pays” for you on day one.
cthor 7y ago
Just as well, you get to start acting like you own the house from day 1.
- greyhair 7y ago
  That is wonderful phrasing on the idea. Thank you.
ubercow13 7y ago
Why should there be no charge for borrrowing the money for 20 years? That doesn’t make sense, you have had the money for 1 month when you make the first payment, and so you are charged for it.
imtringued 7y ago
I don't understand this. You have negotiated to pay a fixed payment per month so why does it matter whether the money is paying off interest or the principal first? The bank didn't force you to get the loan.
- lr4444lr 7y ago
  It matters to the bank. Also, the interest can be written off against income taxes, which helps people more in practical money left over to use when they are earlier in the amortization, and probably their career.
- majortennis 7y ago
  Bank didn't force me. Society has made it virtually impossible for me to own a property without one. Which seems unfair when a lot of people got their property 35 years before I was born for the equivelant of 2 years salary.
  - ubercow13 7y ago
    That’s clearly a completely separate issue to how mortgage rates are presented
sidjun 7y ago
Let's break this down with a simple example: You get a 30yr mortgage for $100,000 at 5% If you paid $0 on principal your first year, the interest would be $100,000x0.05=$5000 Make it monthly: $5000/12=$416.67 rounded up to $417 On an amortization schedule, the fixed payment is calculated at $537, with $120 going to principal and $417 going to interest on your first payment. Exactly what you would expect to pay. The interest isn't front loaded, it's just the actual accrued interest of what you have borrowed. When you pay the $120 in principal on your first payment, your debt reduces to $99,880. $99,880x0.05/12=$416 rounded. Therefore, your next payment, still at the fixed rate of $537 is now paying $121 in principal, and $416 in interest. In short, when you have a large debt, you pay larger interest, when you have a smaller debt, you pay smaller interest. This isn't exploitation, just mathematics.
- majortennis 7y ago
  I conclude that they should just work out the total repayable and be honest and say this is a 70% mortgage. not claim it's 2% but just keep re applying that 2% every month or week or day as they see fit.
  - sidjun 7y ago
    Most of the time, the total interest paid is included in the amortization plan. It's also easy to figure out. Using my example, the exact payment was $536.82. $536.82x12x30=$193,255.20 Total($193,255.20)-Principal($100,000)=TotalInterest($93,255.20) give or take a dollar. And so according to your desire, you'd want them to say it is a 93% mortgage. The reason they don't is that interest rates and compounding are typically done annually. You also have the ability to make extra payments sometimes, which can pay it down faster. The faster you pay the debt, the less interest you pay. For instance, if you win the lotto, receive a life insurance payout, or inheritance, etc and pay off the loan within the first year, it's no longer a 93% mortgage but a 5% one. To me, it makes more sense to say, you owe $100,000 your first year, or $98,398 your second year, and that you'll be paying 5% interest over that year.
    - majortennis 7y ago

Just seems like a massive scam thats become the norm. You're paying off interest on the first month, as if you've already had the money for 20 years. They take liberties from day one.

cko 7y ago

You do already have the money for 20 years - that’s what the lender “pays” for you on day one.

cthor 7y ago

Just as well, you get to start acting like you own the house from day 1.

greyhair 7y ago
That is wonderful phrasing on the idea. Thank you.

ubercow13 7y ago

Why should there be no charge for borrrowing the money for 20 years? That doesn’t make sense, you have had the money for 1 month when you make the first payment, and so you are charged for it.

imtringued 7y ago

I don't understand this. You have negotiated to pay a fixed payment per month so why does it matter whether the money is paying off interest or the principal first? The bank didn't force you to get the loan.

lr4444lr 7y ago
It matters to the bank. Also, the interest can be written off against income taxes, which helps people more in practical money left over to use when they are earlier in the amortization, and probably their career.
majortennis 7y ago
Bank didn't force me. Society has made it virtually impossible for me to own a property without one. Which seems unfair when a lot of people got their property 35 years before I was born for the equivelant of 2 years salary.
- ubercow13 7y ago
  That’s clearly a completely separate issue to how mortgage rates are presented

sidjun 7y ago

Let's break this down with a simple example: You get a 30yr mortgage for $100,000 at 5% If you paid $0 on principal your first year, the interest would be $100,000x0.05=$5000 Make it monthly: $5000/12=$416.67 rounded up to $417 On an amortization schedule, the fixed payment is calculated at $537, with $120 going to principal and $417 going to interest on your first payment. Exactly what you would expect to pay. The interest isn't front loaded, it's just the actual accrued interest of what you have borrowed. When you pay the $120 in principal on your first payment, your debt reduces to $99,880. $99,880x0.05/12=$416 rounded. Therefore, your next payment, still at the fixed rate of $537 is now paying $121 in principal, and $416 in interest. In short, when you have a large debt, you pay larger interest, when you have a smaller debt, you pay smaller interest. This isn't exploitation, just mathematics.

majortennis 7y ago
I conclude that they should just work out the total repayable and be honest and say this is a 70% mortgage. not claim it's 2% but just keep re applying that 2% every month or week or day as they see fit.
- sidjun 7y ago
  Most of the time, the total interest paid is included in the amortization plan. It's also easy to figure out. Using my example, the exact payment was $536.82. $536.82x12x30=$193,255.20 Total($193,255.20)-Principal($100,000)=TotalInterest($93,255.20) give or take a dollar. And so according to your desire, you'd want them to say it is a 93% mortgage. The reason they don't is that interest rates and compounding are typically done annually. You also have the ability to make extra payments sometimes, which can pay it down faster. The faster you pay the debt, the less interest you pay. For instance, if you win the lotto, receive a life insurance payout, or inheritance, etc and pay off the loan within the first year, it's no longer a 93% mortgage but a 5% one. To me, it makes more sense to say, you owe $100,000 your first year, or $98,398 your second year, and that you'll be paying 5% interest over that year.
  - majortennis 7y ago