Well, yeah, certainly they are screwing you there. But you can run the same scam in reverse on those evil bastards by opening up a savings account. If they’re advertising that they pay you a measly 4%, don’t tell anyone, but they actually pay you 200% over 30 years! That means if you deposit $100,000 now, they will actually end up paying you $200,000 for not doing anything at all!
I don’t see how the banks keep overlooking this scam (known in criminal circles as “compound interest”), but don’t tip them off because I’m banking on it to fund my retirement.
Actually it’s even better than that because you can force the bank to not make any payments at all until the very end. You just leave the money in the account and let the interest pile up. So the bank never gets off the debt treadmill until the very end and ends up paying interest on interest.
Well, yes - you paid 5% interest on the money you borrowed, just like the contract you signed specified. The monthly interest charge is based on the outstanding principle; it doesn’t mean that 5% of your payment goes toward interest.
If you’re not happy with that, put the money in the bank for twenty years and buy a house for cash.
This is going to sound a little harsh, but why do you think you should get anything at all for simply putting a roof over your own head for 5 years? If you improved the house or it appreciated, you’ll get some money. Otherwise all you did was tie up the bank’s money, promising them you’d pay interest on it for 30 years, and then exit that agreement after 5. If you don’t think you can hold onto a house for 30 years, then don’t finance it for 30 years. Get better terms or rent. It’s not rocket science.
I will never understand why people think they deserve to be paid for supplying their own basic needs of life. That attitude is exactly what caused the housing bubble.
If you are taking out a 30 year mortgage, yet want to have a measurable amount of equity at the 5 year mark, what about putting down a sizable down-payment? Fifty percent down would give you the flexibility of having equity to realize or borrow on for as long as you own the house.
I just wanted to say that I’m with you on this. Don’t pay any attention to the others. I’ll bet they’re all PMing one another, conspiring to confuse you and derail your thread. They’re tossing out all these facts and figures as though math were some sort of god. Who knows what kind of sordid cult these people have established. Giraffe is obviously the High Holy.
Anyway, I have a solution to the mortgage conspiracy. You can understand why I keep this knowledge secret. But I am willing to share it with you and people like you. For less than the cost of a health insurance policy, you too can know what to do in order to make the numbers work for you. It’s so easy! You can make magic payments that leave the bank wondering what the hell happened.
Here is an actual dramatic reenactment:
Customer: Here’s the money I’m giving you for this month’s payment.
Bank: Oh my god! How did you DO that? Now you owe us less than before!
So you see how easy it is. And in fact I guarantee it. If you follow my method, you will pay less principle each successive month of your loan, or I’ll pay you ten times the balance of your loan. That could add up to MILLIONS of dollars depending on the size of your loan.
Just imagine yourself relaxing in the tropical sun, sipping cold beverages while you spend my money on wine, women, and song. That’s what you’ll do if my system doesn’t work for you.
Call me now. Each day you delay could mean that your bank is laughing at you while it counts its pile of money. Why should they live the good life while you struggle to get ahead? So get off that couch and give me a call. Operators are standing by.
How do I collect on this? I tried that with my previous mortgage, and every month I ended up paying less interest, but more principle. Should I just send you my address for the check?
ps. The value of the mortgage was eleventy billion dollars!
I found a way to beat the mortgage company; when I recently bought a house I insisted on a fifteen year mortgage instead of a thirty year mortgage. That means that I didn’t have to pay them interest for that first fifteen years. And it worked! When I got the statement after I made my first payment, it showed that I owed them less than the full amount I had borrowed. In less than six months I’ve already reduced the amount I owe them by a thousand dollars.
Starting next month, I’m thinking of paying them even more money every month, and insisting that they apply that extra money to the money I borrowed instead of to the interest they want to charge me. If my clever scheme works, I may not owe them any money at all in ten years. And if they try to charge me interest after that, I’ll take them to court!
I’ve been really trying to understand your perspective here. It would help if you would clarify your position on these two things:
Is it your contention that if you take out a $200,000 loan at 5% over 30 years, then that means that you should only pay a total of $210,000 over those 30 years? (5% of 200,000 is 10,000)
You KEEP saying that after 5 years you’ve made payments and “have paid zero on my home”. Are you or are you not talking about an interest only loan?
**Everyone trying to undrestand gonzomax: **What he’s saying is that he believes the principal should be paid off ratably over the term of the loan (on a regular fixed 30-year loan, not interest only). That is, if you have a 30-year loan and you’ve paid on it for 5 years, gonzomax thinks you should have paid off 5/30ths of the principal. I don’t think he’s saying any more or less than this, and he doesn’t understand the implications or consequences of this at all.
Gonzo, you just stated that you’ve put 70K down on a 200K house for 5 years and haven’t touched the principle. Based upon just those two numbers, I’ve managed to calculate out a few things and draw some conclusions
70 over 60 months is $1,166.67 per month.
In order to not lower the principle at all, your monthly payments must exactly equal the interest accruing.
Thus, working backwards, you’re paying 7% interest on your home.
Each month you accrue $1,166.67 in interest. Each month you pay $1,166.67 in payment. You will always and forever owe 200K on the house. If you don’t like it, you have four options:
Pay more each month. Every dollar above $1166.67 goes to principle, not interest.
Lower your interest rate.
If you can neither afford to allocate more than $1,166.67 each month nor have the means of securing a lower interest rate on your loan, then BUY A HOUSE YOU CAN FUCKING AFFORD.
Fucking suck it up and deal with the contract you willingly and of your own volition signed.
Ladies and Gentlemen, this is where Gonzo is confused. From his linked site:
He thinks that a 5% interest rate means that 5% of his payment is for interest and 95% for principal. Gonzomax, that’s not at all what it means. Your link gives a scenario for a $150,000 mortgage at 6%. They show that in year 1, you pay $8,949.89 in interest and $1,842.02 in principal. They’re confusing you by calculating (interest/payment=rate) and showing it’s 83%, not 6%, and crying foul.
This is incorrect, since the formula isn’t true anyway. It’s actually (interest/outstanding$=rate). If we use the correct formula, we find that the interest for the first year should be $150,000*6%=$9000. The table itself shows that the borrower only pays $8,950.
We can thus conclude that the bank…no, you know what? I’m going to write this big:
The bank is charging you less than they said they would!!
Disclaimer for everyone not-gonzomax: I’m ignoring daily compounding, yes I know, but I don’t want his head to a-splode
Gonzo, plain and simple, the article you’ve linked to is lying to you by playing switcheroo with the definition of “mortgage rate”.
ETA: I just want to point out, one more time, Gonzo, that the rate is a percentage of the outstanding balance, not your payment. That’s why the interest is higher in the beginning of the loan (when there’s more outstanding balance) and lower at the end. If you make the same payment, of course there’s less left over to lower the principal early on!!
It’s not. He’s not arguing that he should pay 200k*.06 over the life of the loan. He’s arguing that 6% means he should have 94% of his payment paying off principal. That’s what the numbers in his cite try to imply, but as I showed above, it’s smoke and mirrors because they’re changing the definition (well, actually it’s the rate that they’re talking about that’s changing) and not telling you.
Dunno. In his last post, he seems to imply that it wouldn’t be a scam if he kept the house for 30 years and repaid the loan in full. It only becomes a scam because he sells it after 5 years. But he isn’t going to have 94% of his payment paying off the principal, regardless of the situation.
He seems also, in an earlier post, to draw a distinction between an ordinary loan (then it would be presumably normal to charge him interests for the money borrowed), and a mortgage (then charging him interests without “giving” him equity would be a scam).
At this point, I’m at a loss figuring out what he doesn’t understand.
Maybe someone could try with an imaginary example where he’s asked to pay separately first the interests on the money he owes and then whatever money he has left to repay the principal???
