this post was submitted on 15 Feb 2024
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[–] MacNCheezus@lemmy.today 28 points 10 months ago* (last edited 10 months ago) (2 children)

It's actually far worse than that. If you get $400k loan at the current rate and pay it off over 30 years, you'll end up paying over 1.5x times the principal in interest. Over the lifetime of the loan, a $500k home will cost you over $1M.

(from mortgagecalculator.org)

[–] trafficnab@lemmy.ca 6 points 10 months ago* (last edited 10 months ago) (2 children)

Wait why are the banks investing in home loans when instead investing that money into the stock market (should?) yield greater returns over the course of the loan period (even at a very conservative 5% yearly compounding interest, $400,000 turns into $1.7M over the course of 30 years)

[–] MacNCheezus@lemmy.today 21 points 10 months ago (1 children)

Mortgages are fixed income. Stock market returns are variable and therefore riskier. One bad year can wipe out multiple years of gains. Meanwhile, the money you collect as interest has already been paid, and as you can see from the calculator, the interest is front loaded, meaning the majority of it is paid at the beginning of the loan. So even with the probability of a default wiping out the remainder that's owed, it's still a much safer investment.

[–] Retrograde@lemmy.world 5 points 10 months ago (3 children)

Why aren't these practices considered criminal?

[–] RobertoOberto@sh.itjust.works 8 points 10 months ago

Because the people and organizations with the capital to loan out millions of dollars for house purchases are the ones who make the rules.

[–] BombOmOm@lemmy.world 2 points 10 months ago (1 children)

What is your proposed alternative system? All of this is just an interest rate applied to an outstanding balance. Many less people would own a house without such an option.

[–] Abnorc@lemm.ee 2 points 9 months ago

Yeah my parents are vehemently against borrowing money except for a mortgage. Otherwise, how will you save several hundred thousand dollars or more to buy a house in full? Most people can't do that, even over decades.

[–] Phoenix3875@lemmy.world 10 points 10 months ago

Mortgages are "secured debt", meaning that they are backed by a collateral (in this case, the house). If the person defaults, the bank can seize the house. The risk is lower, and thus even when the interest rate is lower, the bank is willing to take it.

[–] kameecoding@lemmy.world 4 points 10 months ago

jeez, my apartment is fixed at 1% for 10 years, my house for some reason I didn't think about fixing it for longer and it's 1% for only 5 years, but even now that mortgages are peaking in my country they don't go over 6%