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Zer Netmouse
February 3rd, 2009
07:12 pm

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Do You Believe in Usury?

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From:sethb
Date:February 4th, 2009 04:30 am (UTC)
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Huh? The lender is always getting (say) 6% on the amount of money it has invested.

It starts by investing $100,000. In year 1, it gets $6,000 interest, and $1,000 principal. (I'm making up numbers for simplicity.) In year 2, it has $99,000 at risk, and it gets $5940 interest, and $1060 principal. The bank doesn't get its money back until the end; each year, it gets 6% on the money it still has at risk.

The bank also is short the prepayment option: if interest rates rise, you keep the mortgage and the bank gets 6% when a new mortgage would get it 8%. If interest rates drop, you refinance and the bank gets 4% on a new mortgage.
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From:netmouse
Date:February 4th, 2009 12:16 pm (UTC)
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You are making up numbers, and they're wrong.

Unfortunately I just moved and haven't unpacked the whole office so I can't pull my original mortgage records and give you an actual example. blarg, and citimortgage seems to have destroyed my online account now that the mortgage is paid off, so I can't reference that either.

From:sethb
Date:February 4th, 2009 04:23 pm (UTC)
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In any given month, the borrower pays interest of 1/2% of the principal at the beginning of the month, plus some amount of principal. The next month, the principal (on which interest is charged) is reduced by the amount of principal paid.

I can figure out amortization schedules for any rate and period, but the underlying facts are what I've posted.
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