Instead of structuring home loans so that you can never get out from them with compound interest, why not do home loans more like a car loan? Simple interest would almost guarantee far fewer defaults on loans. It would mean more money at the end of the month for home owners to go out and spend in the economy. It would mean the banks would have fewer problems with "risky customers". Sure, any loan comes with risk, but if you can improve the odds that someone will actually be able to pay it back then the banks would get a lot happier customers. It's not like the banks won't still be making money, even at 10% simple interest the bank will be pulling in a good chunk of change from each loan. There are cars on the road now that cost more than my house did but they still give simple interest loans for those cars. Why not my house? It's not like my house is going to be run off the side of a bridge. Even if a house totally burns to the ground, there is still the ground. Once you can get people to afford their own houses, it has the potential of putting fewer people in public housing and relying on the government. With each new homeowner comes home improvement loans (another source of revenue for banks).
I challenge anyone in the banking industry to give me one reason why Simple Interest home loans are impossible. The only answer that is unacceptible is "banks won't make as much money".
(I'd been chewing on this for many years even before I got my own mortgage. )
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4 comments:
Interestingly, the lenders dont make mpney off interest. They make money off fees.
Well I'm pretty sure they are making a ton of money off interest. I mortgaged my house for just under $90K. For the full term of the loan there is almost $250,000 in interest alone. I paid very few fees at closing - I guess it helps to have good credit.
Meh. Its all a scam ;-)
Ever read Rich Dad, Poor Dad?
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