patrick.net

Yes, that's interesting. You can clearly see from my mortgage calculator that when you first take out a mortgage, most of the payment is interest at first, and very little is principal:

http://patrick.net/housing/mortgage_calculator.php

The interest portion gradually falls and the principal portion gradually rises. On a 30 year loan, the interest and principal portions of the payment are about equal in year 17.

But if you refinance the remaining principal at year 17, you move from paying half and half back to paying mostly interest again!

Never occurred to me before, but it does look like the borrowers screws himself in that way by refinancing.

Um, you do realize for a borrower that intends to hold the loan to maturity the front loading isn't as important as the total interest paid. When deciding if a refi is a good deal, the borrower should be looking at the total interest paid for both the remaining part of the old loan and the all of the new. If the new loan has less interest, the front loading isn't that important. In fact, due to the way the mortgage interest deduction works, it may even save you on taxes...

Spending $1 on interest to save 30 cents in taxes is never a good idea.

But yes, the borrower should be looking at the total interest paid for both the remaining part of the old loan and the all of the new.

I think what jan was saying is that if you keep refinancing, even at a lower rate, you could be losing big money each time by going back to paying mostly interest over and over.

Spending $1 on interest to save 30 cents in taxes is never a good idea.

Dang it, Patrick. You ruined my strategy!

RG says

Um, you do realize for a borrower that intends to hold the loan to maturity the front loading isn't as important as the total interest paid. When deciding if a refi is a good deal, the borrower should be looking at the total interest paid for both the remaining part of the old loan and the all of the new. If the new loan has less interest, the front loading isn't that important. In fact, due to the way the mortgage interest deduction works, it may even save you on taxes...

It is very unlikely that for any loan more than a couple years old the remaining interest will be more then the total interest on a new loan plus the refinance costs unless there is a big drop in interest rates. Refinance is a cash cow for banks, which is why so many banks are trying so hard to get people to do it.

It always amazes me that so many people only look at what the payments are rather than the costs. Why anyone would take a 30 year is beyond me. If you can't afford the house with a 15 year then don't buy it.

making the 'last of 30 years of payments' is super rare.
almost no one keeps the same loan that long in our ever lower int rate world.

also if you say $100 a month in a refi and put that toward principal it goes a long way to payoff after a decade.

But really lending and borrowing and insuring of anything should be illegal!!!!!!!! ha.

And just another gem, can anyone do the math to the bank in 6 years of a 30 year mortgage refi at 3 years from 6% to 4.25, versis keeping the 6% rate. Remember even though the rate is reduced you've already spent 3 years of payments on it, and that is free money to the bank, then 4.25 for 3 years. Then you refinance the mortgage at face, does that include interest already paid or not? Say for ease of calc. 100k

Let's see. Interest paid for 6 years of 6% 30-year mortgage on 100K is $34,565.59.

http://patrick.net/housing/mortgage_calculator.php?price=100%2C000&pc_down=0&years=30&pc_interest=6

For just first 3 years of same loan, interest is $17,667.89 with principle of $96,084.07 remaining. So say you then refinance that $96,084.07 at 4.25% for another 3 years of a new 30-year mortgage. The interest will be $15,775.54.

http://patrick.net/housing/mortgage_calculator.php?price=96%2C084.07&pc_down=0&years=30&pc_interest=4.25

So the total for the refinance case is $15,775.54 + $17,667.89 = $33,443.43

But the original case at 6% for 6 years is $34,565.59. So you would actually be better off refinancing if you could get 4.25%.

Except that now your loan term is also 3 years longer.

APOCALYPSEFUCK is Tony Manero says

Bankers are the kind of cannibals that eat their victims alive.

But of course. They want their victims alive and paying interest until the last possible moment.

Its not the rate its the amorta. Dean said that once while peeing on Jerry's shoe. Dean said its hopeless I'm never going to turn this skifooza into any kind of sensable women. Jerry said I know it stop peeing on my shoe. Please.

The amortazation. Front loaded interest. Nothing new really. Been around. They invent new ways of taking you down. 200k choke on that.

Point is that they took control of the Real Estate market which was henious. Seems they had to put a value on everyones house. They used licencing which for them is no big deal. Now Realtors in ever single state have to be licenced. What a coincidence. In fact the tests are basically the same. I could tell you more about what they did to inflate values. People loved it. People don't move into houses only to move back out again. They stay there and if the values go down so be it. Or they lend you more than likely more cash based on the equity. If they had not put a value on everyones house. The inflated values would not have happened. Check the stats. People that move in don't move out they once again stay in the same place. So inflated value does nothing but increase the loan amount. Never makes a profit for the everyday homeowner.

One never stops to think the more the house is worth. The bigger the loan amount. The more they make or rather the more they have you in debt. Whats being advertised is PR and fluff they know it. Because both them and me know how it really goes out here. So for most people escaping in any faster time just isn't reality. Just not possible. Experinced people understand and laugh. Shut his mouth. A loan is once again loaded with so much interest. That getting out any time soon just isn't feasable. So basically they are going where the inexperinced have not tread making it harder to explain. When by osmosis the swindel starts to be discovered by the common guy. Complicate the swindel even more thats the basics for them

Your never going to reform a usuor. It's fairly impossible. They are once again labor pimps. Addicted to having everyone doing their all the work. They love the control although you would never know it by talking to them.

Stop calling it Capitalism. It's usury plain and simple. Once again what they run from that. 30 years on a house that took only 3 months to build. If that ain't usury. Then cows can quack. When they say capitalism and you think usury that they really don't want because you suddenly realize your getting screwed but good.. Revolver credit cards and the like.

The best thing to do is look to your very, very silent government on all of this. Because well they are in debt to them. For the solution. Not going to happen. Just keep in mind the fractional monetary system which is nothing but lending. Privately owned has to repo. They repo a lot. They basically own all the assets. Your just paying on them in a kind of tenant farmer scenario. That wouldn't be so laughable. Except any business more than likely has some kind of loan going. Where you work is either indirectly owned (big corporation) or loaned in some way. They have piles and piles of cash. Tons and tons of assets. Loads and loads and loads of workers. I'd approach the government once again. But then again I have never seen any fucking entity on earth that is in more debt than the U.S. government. In fact if they pulled out the stats. Your government has set the all time world record since recorded history began for being in debt to private owners. That could be a good thing for the usuor's cause they made sure they have more fucking weapons than anyone else has ever had in recorded history. For them it's a good thing they have a tight reign on them I guess. They would repo the government I suppose. But they need them shotgunned up to protect them from the fairly pissed off peasantry.

http://www.youtube.com/embed/MG585GuAfCU

ArtimusMaxtor says

Your never going to reform a usuor. It's fairly impossible.

You'd just as soon be able to turn a hooker into a housewife.

Ironically enough this is why interest only loans were good. You could have had straight line amortization for your loan. If you didn't use this type of loan to buy more house than you could afford and made payments more than the interest amount your loan payment amount would go down every month while keeping the same term.

Truth of it was in California they worked a lot different then they did anywhere else. In fact option arms were always based out of California. Cause well no one could afford a 2 room shitbox at 250k

God may now open his hand and feed you like a Gerbil. I think they are onto us.

Obamas made his big move. The tip the bucket crowd is all a tither. Whos going to win this tug of war? I can watch CNN comments as they mouths froth trying to get their side of the bucket over first. Anyway I thought I'd add this. Its not exactly how I look at life. Learning disabilities of course aren't funny.

http://www.youtube.com/embed/lbA2zNFycCw

I like Dillion a lot he's from the part of NY I am from. I guess I grew up a little cynical. It was a shock to the system for a boy from Detroit. However I got over it and had some fun. I left NY. Way to fast. Really overcrowded.

jan says

And just another gem, can anyone do the math to the bank in 6 years of a 30 year mortgage refi at 3 years from 6% to 4.25, versis keeping the 6% rate. Remember even though the rate is reduced you've already spent 3 years of payments on it, and that is free money to the bank, then 4.25 for 3 years. Then you refinance the mortgage at face, does that include interest already paid or not? Say for ease of calc. 100k

6.0 - total interest 115,838 for 30 years. After 3 years paid 17,300 with 4k in principal. Interest left to pay about 98k (to lazy to use calculator).

4.25 total interest 74,000 for 30 years. About 12k for the first 3 years with 5k in principal.

You would save 24k in total minus the cost of refinance, and the extension of the PMI if you stayed in the house for the entire 30 years of a 4% loan. Payments would drop $120 a month.

A reduction over 1% would be more than break even most of the time, but how many people still have a 6% loan that hasn't been refinanced down in the last 3 years?? Getting a 1.75% better loan would be rare.

OR take a 15 year at 4.25% total interest 34k. The payment would increase 120 month but you would save 40k in interest and pay down almost 15k in principal the first 3 years. Why would anyone take a 30 year?

Spending $1 on interest to save 30 cents in taxes is never a good idea.

It depends on what you are doing with the money you are paying interest on.

If the $1 in interest provides you with money to invest which returns $0.90, then the $0.30 you save on taxes is quite meaningful, as it means you are net + $0.20

swebb says

If the $1 in interest provides you with money to invest which returns $0.90

Give me a dollar and I'll give you $0.90.

Philistine says

Give me a dollar and I'll give you $0.90.

That's a better ROI than you can get anywhere else these days, once you factor in inflation.

If. Interest is off the gross not the net. Dosen't make the burden any lighter. You still pay ALL the interest. It's no bargain. Tell me that the Private owners of the Fed reserve don't own the government with a incentive like that one. WTF is in it for the government? a new road? Shit they will finance that with a bond issue too or a school. Fuck they will finance anything just about. What you really need to do is go downtown and see who "owns" your city. Noob's love mortgage interest deduction. In fact a Noob takes everything way to seriously. Once again off the "gross" dosen't get you all that much. The only serious part of all of this is rent fixing. Where once again the well heeled make sure the rents are comparative from one complex to another. With rent formulations done by commercial appraisers and loan approval contingent to such formulations. Works the same there as "Homeowner" land. In fact more so because with a great home deal like they give everyone they really have the hook in you. In fact the rent comparisons the sales price and subsequently the rent charge it forces you into house. Based on what? The scheme they sell everyone. IF you buy into that scheme. That scheme is a uniform to every realtor in America. Its cheaper to "own". Once again you own IF you make it. If you did "own" it they could not throw you out. Deal is guy it took 3 months to build. You need to do some cipherin on that good deal.

bob2356 says

Why anyone would take a 30 year is beyond me. If you can't afford the house with a 15 year then don't buy it.

Because it's cheaper than renting is one reason.

Paying 30 years of interest to a bank.. or 30 years to a landlord in the form of rent?

If you are at rental parity in your neighborhood.. (Which I would say we are close to with 3.8% 30 year mortgages... in atleast 80% of the US).... then 30 years of paying your rent to a bank is a no brainer.

BoomAndBustCycle says

bob2356 says

Why anyone would take a 30 year is beyond me. If you can't afford the house with a 15 year then don't buy it.

Because it's cheaper than renting is one reason.

Paying 30 years of interest to a bank.. or 30 years to a landlord in the form of rent?

Well, actually do the math then. I have a calculator that helps.

Owning is indeed cheaper than renting in some places now, but they are usually not good neighborhoods. In good neighborhoods, it's still much cheaper to rent the same thing than to buy it. That's why you'd rent.

Another reason not to take on a 30-year obligation is that it's impossible to know that you will be able to pay it for 30 years. Anything could happen in such a long period of time.

I finally sold the house I was thinking of buying because it's on par with renting, main thing is to have friends who are building/fixing contractors and this buyer does, and yep, the neighborhood sucks.

Look 15 years is silly to. I don't understand why people don't consider their time more valuable than they do. Its very valuable you have one life. Get it. Most residential homes take 3 months to build. A much much much smaller number takes 6 months or so and very few take over that. So most people are in 3 bedroom houses of the split level or small ranch variety. I don't understand why someone does not recon the cost put into something that would be part of value. Including material and labor. Once again I know what a builder makes. I know what it takes to process lumber. See. Or the little machine that spits nails. So why ignore whats put into it. Dosen't make sense. I don't care about anyones set up costs. I care about what it costs them per now. See. If I broke down even what a builder makes on a house your hair would curl if its straight. If I broke material costs to the builder from the supplier his freakin hair would curl. In short your being gouged really bad from that point. Then there comes the loan where they gouge you for 100% more or less than you borrowed. See so you spend your life in the big guys fields looking for boll weevils wondering shit I don't want this to happen to my children. I'm not being mean here. I'm actually trying to give people some kind of reference point.

APOCALYPSEFUCK is Tony Manero says

Because it's magic. And you can sell it for 100x what you paid to your neighbor's kids and cripple them for life with soul-crushing debt and get sick and have all that money absorbed by the hospital and that's what makes America great or do you hate prosperity?

That's what American prosperity is all about: taking wealth from someone else, not creating it yourself.

So if I am interested in having a house built from scratch, with things like solar panels and geothermal heating, and not built like a box of sticks, but something that will actually last, then how do I go about finding a contractor who will do it for a reasonable price?

I wonder if the OP was asking about unconventional,
"interest only" loans? We all know what an amortization curve is and that the first payments are mostly interest.

I think the OP means, loans where the first 4-7 years have either no, or negative amortization, and the payments only cover interest, not principal. This would bring people out of the loan's honeymoon period with the principal balance at bubble highs, in a low market.

A 30 year loan CAN be managed intelligently to minimize interest costs. Getting a 30 year instead of 20 or 15 gives you flexibility if there come times when you can't meet the monthly payment of a 15 year loan. But when times are good, adding more to the monthly principal shaves payments off the end of the loan.

Biweekly payments are a busy way to make 13 payments a year instead of 12, usually paying of in ~22 years.

Pity the fools who got "easy" interest only or balloon notes in the bubble!

woppa says

So if I am interested in having a house built from scratch, with things like solar panels and geothermal heating, and not built like a box of sticks, but something that will actually last, then how do I go about finding a contractor who will do it for a reasonable price?

Hahahahahaha! Good luck with that.

woppa says

So if I am interested in having a house built from scratch, with things like solar panels and geothermal heating, and not built like a box of sticks, but something that will actually last, then how do I go about finding a contractor who will do it for a reasonable price?

Interview at least 50 of them.