Friday, 5 June 2009

40 Year Mortgages

This one doesn't need a lot of explanation. One only needs to know that the interest paid for a 40 year mortgage is huge. With a standard interest rate of 6% you're paying close to three times the original value of the house after all the payments have been added up over the 40 years.

Ah, but all that matters to some people is being able to make that monthly payment. And the banks are laughing all the way to the, well... bank.


Anonymous said...

And with the 40 year average on the stock market being 10% per annum, these dumb people don't make anything out of this cheap money, do they?

Smokin' Joe said...

Gosh, each post seems to reveal you as more brilliant than the one before. I like the joke at the end: "all the way to the...well, bank" Ha ha!

Now, I did happen to do a little research on interest rates in the 20th century and it turns out 6% isn't that high actually from an historical perspective. Had someone locked into a 40 year rate at 6% in, say, 1965, they would have done very well after all was said and done, especially during the days of 20% mortgage rates in the early 80s.

But as you so cleverly point out, these people wind up paying 3x or something the value of their house. What fools! Everyone knows that a dollar 40 years from now is worth the same as a dollar today so you're so right that they're dumb to pay so much!

Thanks again for sharing your brilliance!