Posted on 08/27/2010 7:06:17 AM PDT by cycle of discernment
When interest rates fall, the banking industry deals with billions of dollars in refinancing at lower rates -- but they're still obligated to pay higher long-term rates on term deposits. A bank that must cast mortgages at 5% while paying out 6% on long-term certificates of deposit isn't going to stay in business very long.
This is precisely why banks have run into so much trouble in recent decades (the S&L crisis of the 1980s being a good example of this) during periods of falling interest rates. When rates decline and large numbers of people refinance their mortgages, the banks that held the original mortgages do (as you said) get lump-sum cash payments representing the outstanding balances on those mortgages. But they are getting this cash at a time when interest rates -- and therefore investment returns on this money -- are LOWER than they had been before.
This is why the banking industry has been resorting to all kinds of other sources of revenue -- including credit card interest rates, late fees, overdraft fees, etc. -- when interest rates are low.
I would imagine this is why it’s so hard to pay off stuff because everything is frontloaded with loan shark interest rates.
Don’t forget that it was Obama who was one of the lawyers who filed the law suit to force banks to make some of those loans.
If you consider 4-3/4% loan shark rates I suppose so. Of course you could always do the Mortgage Ladder technique and end up paying off your loan in half the time and save literally tens of thousands on interest.
Want to know what caused the mortgage meltdown? Read “The Big Short” by Michael Lewis.
I pay cash.
If I don’t have the cash, I don’t buy. No interest at all. Problem solved.
A very wise policy that. Unfortunately we weren't able to come up with 90K in cash when we bought our home.
ping
Because that would require being aggressive. The GOP is not familiar with the concept.
Well written, succinct, and to the point! As such, it will either be ignored, or attacked, by libs.
That's because in the committee that would have passed it on to the floor for a vote, the Democrats voted as a bloc against the reining in of Fannie and Freddie. In addition, after an ACORN sponsored rent-a-mob invaded the hearing, yelling and screaming, a couple of RINOS on the committee went along with the Dems, and the changes died before they ever made it to a vote of the full body.
In one of his SOTU speeches, Buch bragged about increasing the percentage of home ownership.
Excellent!
Bookmarked.
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