McCain’s Hidden Treachery

McCain tricks us with Wall Street Health Care, Wall Street Schools, and again, Wall Street Homes.

‘Yes, let’s help homeowners refinance at today’s appraisal’, he says. McCain is lying big time.

On a $100,000 loan at the current 6.3%/fixed 30, the cumulative/total interest is $122,800. That’s bad enough. But the real story is the rate at which you, the borrower, pay that interest to the lender.
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For about 17 years with that loan, each month you pay more to the bank in interest than to the principal. The highest I:P ratio is in the first payment, and that shifts microscopically each month. On the front end, about 5/6 of each month’s payment is interest. At the end of 10 years, you’ve paid the note down only by about $18,000, and you’ve paid the lender $63,874. You’re halfway through paying the whole interest bundle before you’re even 1/5 through paying your principal down. Around year 20, by the time you are paying about 50-50 each month, the bank has already made as much in interest as they lent you.
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Think about this in light of the current mortgage crisis. The bigger the loan, the more heavily the interest is balanced on the front end. THIS is why they pushed the jumbo ceiling up for Freddie/Fannie. THIS is why they want housing prices to stay up. They want more people in packages NOW to get the interest river flowing again. And this is why they want people in houses NOW before things go down more. They encourage blame–all those greedy people, stupid about mortgages–but the fact is, bankers COUNT on their customers to be arithmetically ignorant.
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Now consider the median CA housing price, $370K. Multiply that 6.3%/30/100K loan by 3.7:
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3.7 x $618.97 = $2,290/mo, you’re thinking, and “How much would I have to make” and so on. But what your lender is thinking is 3.7 x $122,800 = $454,000 in interest over the term of the 30. ***The lender gets $370,000 of that by the time the mortgage holder’s payments just start to break even with interest,*** in year 19! The lender gets their half of their total interest long before you reach half of your principal paydown.
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This is why they encourage people to refinance–to get the interest to reset to the fat part of the curve, the beginning. This is why they encourage people to “trade up” with housing, or to flip. This is the hidden Mobility Tax on people who move every few years, as Americans did thru the ’90s and till recently.
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These numbers don’t include other costs, like tax and insurance. Nor does it cover the fact that a lot of people finance their closing costs. But if you plan carefully, and save, and have discipline, you can effectively reduce your mortgage rate to about 2 percent by aggressive prepayment in the first 1/3 of the loan.
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However you cannot do that while the median price of housing ($370K) is more than 5.4 times the CA FTB’s estimated state median income ($68K).
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Another banking industry strategy is longer loans. If you take the 100K loan to 40 years, as some are suggesting, a 6.3% loan would make the lender a whopping $174,208 in total interest. At the end of the loan, the borrower pays close to twice the principal amount.
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If you borrowed the CA median for 40/6.3%? The total interest would be $644,571. Front end loaded. The first 30 months of this loan would pay under $200 to principal, and nearly $2,000 to the bank. It’d take you nearly 30 years before you were paying more principal than interest each month, and by then, the bank would have gotten $567,528 from you. The more money you borrow, the more heavily loaded on the front end the interest is, and the quicker the banks make their lump. This is why they don’t want affordable housing, or big down payments, or reasonable terms.
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See why they want and still want refinancing?

To wreck our nation, we give banks trillions, and trillions more to keep them.