Was a 10% APR on a mortgage considered a good deal in the 1980s?

[Common_Tater]

@samclem

but, of course, you just did that very thing. Keep politics out of GQ, please.

You also should realize that old folks were getting 15% on their CD’s in the early 80’s. The smart ones locked in on a t-bill for 20 years. Most didn’t, as they thought the inflation spiral was forever.

Not just old folks - when my aunt passed away in that same time period - she left me a couple bonds from the Criterion Acceptance Guarantee Corp. at 14.25 per cent, iirc. I promptly spent them over the next couple years, stupidly of course. Although, they were “callable” bonds. I’m sure the decrease of interest rates were a big factor in the stock market boom in the next decade. Who wants to risk money in the market when a very respectable return is guaranteed?

[Mama_Zappa]

@me

…One in particular was losing money because they’d locked in so much CD money (on the order of 3 or 5 billion dollars) at high rates, and then rates fell - so their newer loans were taking in less money than their older CDs were demanding.

@Kevbo

…
This comment makes no sense to me. A huge factor in the thrift failures was a lack of liquidity.

To me that means they’d loaned most of what had been invested, presumably at favorable rates.

Did they just not adjust the rates for CDs fast enough to catch the falling loan rates?

I oversimplified the situation of course, but one factor in the closing I referenced was indeed the disparity between what they had to pay out on those CDs that were locked-in before rates fell, and what they were making on newer loans. When they had 3-5B in CDs earning 13%, and newer loans were earning, say, 10% or less, this had a bad effect on cash flow. Since CD rates had dropped for new CDs, they weren’t taking in as much cash for new deposits, either. Had they been able to hold on for a couple of years til those 13% CDs matured, then obviously things would have improved because their loan rates would have been more in line with their CD rates.

There were surely other issues going on (mismanagement? poor investment choices?) but I was not involved in the other areas of the business.

As a hijack on the hijack :): the S&L I refer to above was on the west coast. I was also involved in closings at much smaller S&Ls in Texas, where the problem was not CD rates vs loan rates, but bad loans due to the economic downturn - a large percentage of the loan portfolios had gone bad, and the institutions could no longer hang on. Again, oversimplifying the issues (I’m not an economist or banking specialist) but that was one significant factor.

[David_Simmons]

@friedo

That seems excessive to me, even taking into account that interest rates are still fairly low these days. I got a 30-year fixed just last summer at 6.25%. Were interests rates really so high in the 1980s that 10% was considered a good deal?

Yes. In 1981 I got a 30 year, US government guarnteed GI loan on a house at 14.5%. After the first year I remarked to my wife that things were going great. We had already paid off $17.85 of the principal.

Of course, I refinanced as soon as interest rates dropped.

[JohnT]

In 1979, my grandfather sold a campground he co-owned with his son and another investor for around $3 million. The agreed-upon rate of interest?

Prime+3%

Obviously, some reworking of the deal was in order a couple of years later (my grandfather had no desire to get the campground back, and no intention of bankrupting anybody) when the borrower was paying 24% on a $3 million loan.

Ouch!

Of course, what my grandfather did with the money was sheer… genius or luck, take your pick. He put it all in the stock market, feeling that it was due for a large rise.