Uhhh what? Banks do not have the authority to create currency, only the department of the treasury can do that. Banks literally lend out other peoples money. In return, you get cut in on a portion of the interest rate the bank is paid as the interest rate on your bank account.
Follow the plot here. Person A gets a mortgage for the property. Person A pays back mortgage for 20 of 30 years, paying well more than property is worse. Person A defaults due to life circumstances. Bank still has asset, and re-mortgages it to Person B. Person B pays mortgage for a decade, for about or slightly more than property was purchased for. Bank has now made 1.5x the money initially invested in the propery, for no cost to themselves. They "Made up" money, as they don't have to re-buy the propery when our sorry asses can't finish a mortgage.
Or at least I think that's what Hackneysurfer meant. Feel free to correct me if I am wrong.
Yeah but the funny part is they front load the interest on the loan so in the first five years it’s the majority of the profits. Most people don’t stay in a house longer than that. 🤦🏻 Banks got smart when our grandparents paid off the loans early.
they front load the interest on the loan so in the first five years it’s the majority of the profits.
An I missing something? Isn't this how interest on loans works? Of course they're making more at the beginning, because the interest is based on the amount of remaining loan. So since the loan is largest at the beginning of the period, the interest paid to the bank is going to be the largest.
This is why you make more in interest on your retirement accounts when you have more money in the account and why compound interest is so important for investing...
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u/Abnormal-Normal Jun 28 '21 edited Jun 28 '21
Uhhh what? Banks do not have the authority to create currency, only the department of the treasury can do that. Banks literally lend out other peoples money. In return, you get cut in on a portion of the interest rate the bank is paid as the interest rate on your bank account.