• MacN'Cheezus
    link
    fedilink
    English
    284 months ago

    Not entirely true. I’m what they call a deadbeat (meaning I pay off my cards in full every month and have been doing so for the past 10 years, making them $0 profit), and I have a 800 score.

    I think the more correct way to think about it is that it’s an estimate of your profit potential. What everyone tells you to do with a score this high is to buy a house because you qualify for the best mortgage interest rates. But of course then they’ll have me on the hook for the next 30 years, and they stand to make in excess of $100k in profit.

      • MacN'Cheezus
        link
        fedilink
        English
        28
        edit-2
        4 months ago

        It’s actually far worse than that. If you get $400k loan at the current rate and pay it off over 30 years, you’ll end up paying over 1.5x times the principal in interest. Over the lifetime of the loan, a $500k home will cost you over $1M.

        (from mortgagecalculator.org)

        • @trafficnab@lemmy.ca
          link
          fedilink
          English
          6
          edit-2
          4 months ago

          Wait why are the banks investing in home loans when instead investing that money into the stock market (should?) yield greater returns over the course of the loan period (even at a very conservative 5% yearly compounding interest, $400,000 turns into $1.7M over the course of 30 years)

          • MacN'Cheezus
            link
            fedilink
            English
            214 months ago

            Mortgages are fixed income. Stock market returns are variable and therefore riskier. One bad year can wipe out multiple years of gains. Meanwhile, the money you collect as interest has already been paid, and as you can see from the calculator, the interest is front loaded, meaning the majority of it is paid at the beginning of the loan. So even with the probability of a default wiping out the remainder that’s owed, it’s still a much safer investment.

              • @RobertoOberto@sh.itjust.works
                link
                fedilink
                English
                84 months ago

                Because the people and organizations with the capital to loan out millions of dollars for house purchases are the ones who make the rules.

              • BombOmOm
                link
                fedilink
                English
                24 months ago

                What is your proposed alternative system? All of this is just an interest rate applied to an outstanding balance. Many less people would own a house without such an option.

                • @Abnorc@lemm.ee
                  link
                  fedilink
                  English
                  23 months ago

                  Yeah my parents are vehemently against borrowing money except for a mortgage. Otherwise, how will you save several hundred thousand dollars or more to buy a house in full? Most people can’t do that, even over decades.

          • @Phoenix3875@lemmy.world
            link
            fedilink
            English
            104 months ago

            Mortgages are “secured debt”, meaning that they are backed by a collateral (in this case, the house). If the person defaults, the bank can seize the house. The risk is lower, and thus even when the interest rate is lower, the bank is willing to take it.

        • @kameecoding@lemmy.world
          cake
          link
          fedilink
          English
          44 months ago

          jeez, my apartment is fixed at 1% for 10 years, my house for some reason I didn’t think about fixing it for longer and it’s 1% for only 5 years, but even now that mortgages are peaking in my country they don’t go over 6%