The Western Governments Interest Rate That Keeps Everyone Pinned Down

[Madhuri]

Hi Eselam,
I read recently that Australia has the highest housing prices in the world. In fact, in any city the average price for a house, even a small one, is a lot higher than the figures you presented in the OP. It is actually ridiculous.

I this the interest system is terrible and I'd love to see a change. People with high mortgages are really putting themselves at risk because the interest rates can fly so high and suddenly those people are out of a home.

On top of that, a lot of people seem to be irresponsible with their decisions. I know quite a few young people who decide to get a home loan when they have no real money saved and are already struggling. Talk about digging yourself a grave!

 

[lunakilo]

I this the interest system is terrible and I'd love to see a change. People with high mortgages are really putting themselves at risk because the interest rates can fly so high and suddenly those people are out of a home.

That is why most people with a brain choose a FIXED interest rate loan.

On top of that, a lot of people seem to be irresponsible with their decisions. I know quite a few young people who decide to get a home loan when they have no real money saved and are already struggling. Talk about digging yourself a grave!

But you cant blame the system for people being stupid.

One simple rule. If you can't pay back the money don't borrow it.

 

[Penumbra]

You cannot be on the Dark Side because yer a forriner

A credit score is a 3 digit 'rating' of your personal credit situation. It's based on a variety of arbitrary rules created by the credit/banking system which describes how eligible you are for more credit - and it's basically meant to be there to make you feel like a lesser human being, if it's not perfect, and, the system is set up so that your score drops over arbitrary and absurd [read: counterproductive] reasons so that you'll panic and work in ways which make you more in debt, in order to make this score rise again.

My score is garbage because - and if you were a financial worker you'd realize this -
I have not applied for credit in many years, have not taken out credit for a number of years, and have not paid back any credit in a number of years. I've mishandled debt by not having any and bucking the system in its face.

You see, Luna, my credit score will have dropped dramatically if I followed habits which made my own financial situation much better and deprived the banks or creditors of business. According to them, HAVING debts I am not fully repaying makes me a better credit customer. PAYING DEBTS BACK makes me a bad one. HAVING ZERO DEBTS makes me an abysmal one, and since I have zero debts, my score is likely in the toilet. But they [technically, although I am sure there is a manner for them to see without my permission or consent] cannot view it as I've frozen my credit record.

Ask Kathryn. And btw, Kathryn, your response really didn't address the fact taht what I said was accurate in that the credit industry will destroy your family without a blink if what I said, actually happened to you. And you know it will. Plan all you like, it can be swept away no matter how you 'prepare'. Im not asking what nest eggs you have put aside, Im asking you to face the fact that the system you used to work for will eat you alive at the first possible opportunity. It wants to eat you alive.

A credit score measures things like,
-not having missed payments recently
-not having a recent bankrupcy
-the amount of total credit you have, compared to the amount you are using (having lots of left over credit is good, if you use too much of your existing credit, you're higher risk, and so lower score)
-the age of your credit accounts
-other factors like number of credit checks, types of credit, etc.

You can have a very, very strong credit rating while maintaining a very strong financial position and using debt negligibly.

 

[Madhuri]

That is why most people with a brain choose a FIXED interest rate loan.


But you cant blame the system for people being stupid.

One simple rule. If you can't pay back the money don't borrow it.

One of the issues in this country is that housing is so expensive that the vast majority of people need to borrow a lot of money to afford it. There are also people who spend most of their life forking money to pay off mortgages and when it's too much, they try to sell the property and it can take years to find a buyer. Especially with a down turning economy. Most people are finding themselves in trouble.

 

[Gharib]

You can call the interests something else like the fee Heathen Hammer suggested, but as I said I see no difference between that and a fixed interest loan. You know from the start how much extra you will end up paying the bank.

It would be possible to change the rules of lending money, but I have not heard of any suggestions yet which I think are better or even different from the way things are done now.

I apologize for my long absence from this thread, I happened to open a number of thread all relatively close in time frame and it's a little hard to keep up. But I wanted to address the two quotes above.

I will explain how this works in Islam where interest is forbidden. You see a house that you like to buy and go to the bank for a loan. The bank then may send it's negotiators to the owner of the house, get it for much cheaper and sell it to you for more. The banks profit comes form selling the house more with a reasonable and realistic price. They may even hike the price a little extra in order to gain profit.

The benefit of this method is that when and if you face a financial difficulty, any amount of money that you pay goes directly towards the loan. In the interest method, if you do not meet a minimum required amount, you are only throwing money away to pay for the interest and not the loan.

The non-interest method pays the loan quicker, it gets you more security, and whether you pay it on time or whether you extend it a little, you still pay the same amount.

But in comparison to the interest method, if you do pay it quicker you still pay the same amount of money that you borrowed, whereas in the interest method you pay the loan (which is less than in the other method) and you end up paying less interest than what was initially expected. However, that is not to say that if you add up the interest and the loan it's total won't be the same as that of the non-interest method, they could be exactly the same amount in the end.

 

[Kathryn]

A credit score is a 3 digit 'rating' of your personal credit situation. It's based on a variety of arbitrary rules created by the credit/banking system which describes how eligible you are for more credit - and it's basically meant to be there to make you feel like a lesser human being, if it's not perfect, and, the system is set up so that your score drops over arbitrary and absurd [read: counterproductive] reasons so that you'll panic and work in ways which make you more in debt, in order to make this score rise again.

That's funny.

A credit score is based on factors such as past payment history on loans, the borrower's job stability, income, income sufficiency, debt to income ratio, and the impact of the economy.

So as you see, credit scores are not 'built" on debt or the payment of debts alone.

As for "feeling lesser of a human being, panicking if it's not perfect," - wow, sounds like a personal problem to me. My credit score has had it's ups and downs and it never evoked such feelings in me.

By the way, I worked in the financial industry for years, and literally NEVER saw a "perfect" credit score (850). In 2010, the average score in the US was 723 - a score which will certainly allow a person to take advantage of good, low interest rates.

My score is garbage because - and if you were a financial worker you'd realize this -
I have not applied for credit in many years, have not taken out credit for a number of years, and have not paid back any credit in a number of years. I've mishandled debt by not having any and bucking the system in its face.

I'm not clairvoyant. How would I know why your score is "garbage?"

And by the way, if indeed your score is "garbage," I doubt very seriously that it's simply because you don't have any credit. A credit score is not based on that alone, as I pointed out above. As a loan officer, I often had customers in the same scenario. A very young person - with no job history AND no credit history - would probably have a hard time getting a large loan. But an adult with several years of good job history, who hasn't applied for any credit for years, with a good credit score (yes, you can definitely have a decent credit score with no debt, because the scores depend on other factors as well), can usually "get credit" easily.

You have other options too. For instance, my father hasn't had any debt in years and his credit score is over 800. How does he do it? He has ONE credit card and he uses it a couple of times a year and then turns around and pays it off immediately, so he never pays any interest. Lots of people do this to maintain an excellent credit score while staying completely out of debt.

You see, Luna, my credit score will have dropped dramatically if I followed habits which made my own financial situation much better and deprived the banks or creditors of business. According to them, HAVING debts I am not fully repaying makes me a better credit customer. PAYING DEBTS BACK makes me a bad one. HAVING ZERO DEBTS makes me an abysmal one, and since I have zero debts, my score is likely in the toilet. But they [technically, although I am sure there is a manner for them to see without my permission or consent] cannot view it as I've frozen my credit record.

Wow, you are so emotionally involved in this. Paying debts back in a responsible manner DOES indicate that one can and will do so. In other words, the best predictor of future behavior is past behavior. Don't take objective reality so personally.

As for companies being able to access your "frozen credit reports," no, they can't do so if you've formally "locked" them. Don't be so paranoid.

Ask Kathryn. And btw, Kathryn, your response really didn't address the fact taht what I said was accurate in that the credit industry will destroy your family without a blink if what I said, actually happened to you. And you know it will.

Actually I did address it. But the fact that you didn't realize it thru your paranoid ranting doesn't surprise me.

"The credit industry" doesn't destroy people's family - let alone their credit - life and the actions of individuals destroy people's credit - and their families.

Sometimes life holds terrible tragedies for people. That's just an unfortunate reality. "The bank" doesn't cause you to lose your job, or not save enough money to live on thru an emergency, or plan poorly, or become disabled, whatever.

Plan all you like, it can be swept away no matter how you 'prepare'. Im not asking what nest eggs you have put aside, Im asking you to face the fact that the system you used to work for will eat you alive at the first possible opportunity. It wants to eat you alive.

Nice way to avoid personal responsibility for your own financial decisions and planning.

 

[dust1n]

It seems a little unethical. Due to fractional reserve banks, not only do banks loan at an interest rate, they continue to loan up to 90% of their reserves, sometimes to other banks, who in turn do the same thing. If you took out a loan for 100 bucks, you'll pay back 107 dollars, but the only way money comes into existence is through loans, with interest rates. All personal debt could never be paid off by virtue of this system, and, consequentially, a number of people will always go bankrupt, regardless of 'intentions' or 'intelligence' or 'character.'

 

[dust1n]

But you cant blame the system for people being stupid.

One simple rule. If you can't pay back the money don't borrow it.

Wowser. 1.2 million foreclosures in 2010 America. I guess it would be totally safe to assume all of these people are being stupid. It isn't the system that disenfranchised multiple families...

 

[dust1n]

1. Rent, don't buy. Rent something affordable and save your money till you can actually pay cash for a house. Don't say it can't be done - I've watched people do it over and over again.

They also rented above the price of the mortgage (often, at least), so that any rent situation is set up for you to pay off someone else's mortgage rather than your own, assuming the property isn't fully owned. Whether you are renting or accepting a loan, you are still essentially paying the bank for the property, or paying someone who did essentially pay the bank, and the renter is still subject to losing livelihood in the same ways someone else with a mortgage would.

 

[Kathryn]

Wowser. 1.2 million foreclosures in 2010 America. I guess it would be totally safe to assume all of these people are being stupid. It isn't the system that disenfranchised multiple families...

Let's put that in perspective. 5% of mortgages in the US went into foreclosure in 2010.

http://www.totalmortgage.com/blog/m...age-loans-in-foreclosure-at-end-of-2010/10277

Speaking from my experience in real estate and as a loan officer, I can tell you that YES - it's not at all unreasonable to assume that 5 percent of people who buy a home are making a very poor financial decision.

In fact, I'm surprised the percentage is THAT low - in my years in real estate, I felt that about 20 percent of my customers were buying more house than they could afford.

 

[Kathryn]

They also rented above the price of the mortgage (often, at least), so that any rent situation is set up for you to pay off someone else's mortgage rather than your own, assuming the property isn't fully owned. Whether you are renting or accepting a loan, you are still essentially paying the bank for the property, or paying someone who did essentially pay the bank, and the renter is still subject to losing livelihood in the same ways someone else with a mortgage would.

Only a very foolish homeowner or investor would have a large percentage of their investment property mortgaged. That dog won't usually hunt.

 

[dust1n]

Let's put that in perspective. 5% of mortgages in the US went into foreclosure in 2010.

Nearly 5 Percent of Mortgage Loans in Foreclosure at End of 2010 | Mortgage Rates & Trends: Mortgage Blog

Speaking from my experience in real estate and as a loan officer, I can tell you that YES - it's not at all unreasonable to assume that 5 percent of people who buy a home are making a very poor financial decision.

In fact, I'm surprised the percentage is THAT low - in my years in real estate, I felt that about 20 percent of my customers were buying more house than they could afford.

That was just in 2010. There will be plenty more to come as the foreclosure process takes a bit. This also includes a number of foreclosure frauds rampantly being executed by banks.

Revelations about the rampant use of “robosigned” documents, backdated loan assignments and other flawed and fraudulent foreclosure practices at the nation’s biggest banks triggered a national uproar in the autumn of 2010.



In February, after more than a year of negotiations, government officials and five of the country’s largest banks signed a $25 billion settlement over abusive foreclosure practices. That deal also put in place new mortgage servicing standards aimed at stemming robosigning and other shoddy foreclosure practices.

A poor financial decision by a consumer is a lot more understandable than a bank who loans money to people who it obviously sees will not be able to afford to loan. Not everyone can be an expertise at finance in the way that banks are.

But pushing that aside, it doesn't matter. If all money is created through loans with an interest rate, than there is always a debt larger than the accumulation of all money. So if 100mil is pumped into the economy with an interest rate of 7%, than 107mil would have to be paid back. There is automatically a 7% gap that can never be filled, meaning that a certain percentage of all loans will go bankrupt, regardless of how smart or intelligent people are. If those 1.2 million houses didn't go bankrupt, than 1.2 other houses would have went bankrupt. If loans were used to create all houses in America at various interest rates, the only way the interest could be paid off is by making money off someone else who has indebted themselves. So if a certain percentage of loans are paid off including interest, than not only will the interest not get paid off on the other loans, the money that went into the interest of the other loans is essentially the loan money from the other loans. Therefore, if anyone pays off a house, than another will be short. The only way to solve this issue is infinite growth or huge amounts of exports (which of course, rely on the money taken out in the form of loans somewhere else in the world), which is not possible due to finite resources.

 

[illykitty]

While we do have a very good credit, a house we can easily afford and no other debts, I tend to dislike interest and the banking system on a whole. Maybe I'm rather influenced by the Zeitgeist movies and Islamic no usury rule but I am under the impression that there could be something better out there and people aren't doing anything about it because of how much power the banks hold.

Call me a conspirator, I don't care, banks have screwed up our society. We just keep getting ourselves into deeper debts with money that doesn't exist.

 

[dust1n]

Only a very foolish homeowner or investor would have a large percentage of their investment property mortgaged. That dog won't usually hunt.

Agreed. In that case, the bank was already paid off or was purchased by a wealthy person, whose wealth accumulated by virtue of taking/making money from other peoples loans, loans that will never get paid back.

These situations are almost classic capitalist control of property. One guy owns 10 homes, and collects rent on ten people. Those ten people must draw income. In order to draw income, one must have a job or own some means of production, and in order for that to happen, it had to be financed at some point in time at interest.

If you were disabled, or incapable or working, the future for ya would seem pretty bleak. You are renting, but never capable enough of creating enough money to save in order to purchase a house in cash.

 

[Kathryn]

Agreed. In that case, the bank was already paid off or was purchased by a wealthy person, whose wealth accumulated by virtue of taking/making money from other peoples loans, loans that will never get paid back.

What????? That's not how most people buy or acquire investment properties.

I've done a number of "flips" in my day. I made the money on the flip by buying an ugly house that needed work, putting in a lot of elbow grease myself, and making sure the house was in a good location and structurally sound so my profit wasn't eaten up by unforeseen expenses.

People who own rental property do much the same thing.

These situations are almost classic capitalist control of property. One guy owns 10 homes, and collects rent on ten people. Those ten people must draw income. In order to draw income, one must have a job or own some means of production, and in order for that to happen, it had to be financed at some point in time at interest.

Not necessarily. I know this sounds crazy, but guess what - some people PAY CASH for property, or to start a business.

My husband and I are about to build a small lake cabin. We will not EVER have a mortgage on it. We will do it a bit at a time till it's completed.

We're not going to build a 1500 square foot lake house, though of course I'd love to - and we have a good credit score so we could certainly go to the bank, get a $150,000 loan, and build a two or three bedroom lake house with a mortgage. It's tempting - and the bank has already pre approved us for that. But that would not be a wise decision on our part, I don't care WHAT the bank says.

So we're building a 600 square foot, one bedroom and a loft cottage. In other words, living within our means.

If you were disabled, or incapable or working, the future for ya would seem pretty bleak. You are renting, but never capable enough of creating enough money to save in order to purchase a house in cash.

Many Europeans, Asians, NEVER own their own home - did you know that? They seem pretty happy overall, in spite of this.

You wouldn't believe the ways people come into money, or save money. Tax returns they never touch, inheritances, settlements, bonuses they save for years, renting an apartment with modest rent rather than renting or, worse yet, buying a house with zero down payment, you name it, driving a paid for car with high mileage to avoid taking on a $500 or $600 a month car payment (you could easily save over $5000 IN ONE YEAR with that one choice), you name it.

That being said, some people will never be able to purchase a house. Like - many Europeans and Japanese, and most people living in places like Hong Kong, New York City, Washington, DC, etc.

http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate

Under half of all Germans and Dutch own their homes. 69 percent of people in the UK and Australia own their homes, 68 percent of people in the US, and 67 percent of people in Canada own their homes.

Frankly, it's not the end of the world not to own your home. Home ownership is a HUGE responsibility - and the phrase "money pit" is often fitting for a reason.

 

[dust1n]

What????? That's not how most people buy or acquire investment properties.

I've done a number of "flips" in my day. I made the money on the flip by buying an ugly house that needed work, putting in a lot of elbow grease myself, and making sure the house was in a good location and structurally sound so my profit wasn't eaten up by unforeseen expenses.

People who own rental property do much the same thing.



Not necessarily. I know this sounds crazy, but guess what - some people PAY CASH for property, or to start a business.

My husband and I are about to build a small lake cabin. We will not EVER have a mortgage on it. We will do it a bit at a time till it's completed.

We're not going to build a 1500 square foot lake house, though of course I'd love to - and we have a good credit score so we could certainly go to the bank, get a $150,000 loan, and build a two or three bedroom lake house with a mortgage. It's tempting - and the bank has already pre approved us for that. But that would not be a wise decision on our part, I don't care WHAT the bank says.

So we're building a 600 square foot, one bedroom and a loft cottage. In other words, living within our means.



Many Europeans, Asians, NEVER own their own home - did you know that? They seem pretty happy overall, in spite of this.

You wouldn't believe the ways people come into money, or save money. Tax returns they never touch, inheritances, settlements, bonuses they save for years, renting an apartment with modest rent rather than renting or, worse yet, buying a house with zero down payment, you name it, driving a paid for car with high mileage to avoid taking on a $500 or $600 a month car payment (you could easily save over $5000 IN ONE YEAR with that one choice), you name it.

That being said, some people will never be able to purchase a house. Like - many Europeans and Japanese, and most people living in places like Hong Kong, New York City, Washington, DC, etc.

List of countries by home ownership rate - Wikipedia, the free encyclopedia

Under half of all Germans and Dutch own their homes. 69 percent of people in the UK and Australia own their homes, 68 percent of people in the US, and 67 percent of people in Canada own their homes.

Frankly, it's not the end of the world not to own your home. Home ownership is a HUGE responsibility - and the phrase "money pit" is often fitting for a reason.

Rent isn't the worst thing now-a-days, I'd admit to that. It's not like renting is the end most of time, though it is for some people.

My point was, the pure cash in which to buy a rental property and to rent it, is essentially money that is made elsewhere. The money that is made elsewhere is made by selling goods/services. The money paid for these things are also of that, but they are also of loans. If you traced all money back to where it came from, it all came from loans, with an interest rate.

All money creation comes from loans. No money enters the system without an interest rate attached to it, so it is inevitable that foreclosures will happen, regardless of the number 'unintelligent people' taking out loans. This point is more captured in my other post. I just wanted to point out that renting is not a legitimate means of living. With a house, you (supposedly, if there are no housing crises.) are putting money into an entity whos value remains the same or appreciates over time. With renting, you aren't putting that money into any format that you could ever potentially get back. In a society where people are incapable of ever producing enough funds to build their own property, rent is a never end process of putting your money into someone else's pocket. This is why those old motto's of 'rent is theft' held for so long.

 

[lunakilo]

Wowser. 1.2 million foreclosures in 2010 America. I guess it would be totally safe to assume all of these people are being stupid. It isn't the system that disenfranchised multiple families...

Stupid or mislead by the bank. The latter is probably the case in most cases.

If you go to the bank for a loan and a polite person in a suit tells you that taking out the loan will be no problem because ... <insert banko-babble that no ordanary mortals understands> ... and you know your neighbor took out a similar loan last month and he seems to be doing all right, then you are probably going to trust the nice person and take the loan so that you can buy the stuff you want.

This is the bank being evil, not the practise of taking interests being evil.

The whole problem is that banks are lending money to people who don't understand the risks involved.

 

[lunakilo]

I apologize for my long absence from this thread, I happened to open a number of thread all relatively close in time frame and it's a little hard to keep up. But I wanted to address the two quotes above.

I will explain how this works in Islam where interest is forbidden. You see a house that you like to buy and go to the bank for a loan. The bank then may send it's negotiators to the owner of the house, get it for much cheaper and sell it to you for more. The banks profit comes form selling the house more with a reasonable and realistic price. They may even hike the price a little extra in order to gain profit.

The benefit of this method is that when and if you face a financial difficulty, any amount of money that you pay goes directly towards the loan. In the interest method, if you do not meet a minimum required amount, you are only throwing money away to pay for the interest and not the loan.

The non-interest method pays the loan quicker, it gets you more security, and whether you pay it on time or whether you extend it a little, you still pay the same amount.

But in comparison to the interest method, if you do pay it quicker you still pay the same amount of money that you borrowed, whereas in the interest method you pay the loan (which is less than in the other method) and you end up paying less interest than what was initially expected. However, that is not to say that if you add up the interest and the loan it's total won't be the same as that of the non-interest method, they could be exactly the same amount in the end.

That sounds very much like the the example withe the fee.

You agree to pay $x for the house and $y extra to the bank so you borrow $x + $y from the bank and pay that back over a period of time. The bank makes $y in proffit (assuming that you end up paying back your loan)

But still there must be some more rules involved.
A minimal amount you have to pay each month and a maximal periode you have to pay back the money before the bank comes and takes your house.

As far as I can see the above method would work as well as the one where you charge interest.
I don't really see much difference between the two methods though.
Both can work and both can be misused by evil bankers.
You can charge a high fee or demand the loan being payed back quickly or demmand that if you haven't payed back the loan by a certain date you must take out a new loan to pay back the old one and this new loan has a higher fee (oh, that is interests in desguise ) .

 

[Kathryn]

Stupid or mislead by the bank. The latter is probably the case in most cases.

If you go to the bank for a loan and a polite person in a suit tells you that taking out the loan will be no problem because ... <insert banko-babble that no ordanary mortals understands> ... and you know your neighbor took out a similar loan last month and he seems to be doing all right, then you are probably going to trust the nice person and take the loan so that you can buy the stuff you want.

This is the bank being evil, not the practise of taking interests being evil.

The whole problem is that banks are lending money to people who don't understand the risks involved.

Hold up - I'm not saying that banks are not sometimes to blame for bad loans, but people making large financial decisions have a responsibility to take it upon themselves to gather info to make the BEST financial decision.

I've sat across a desk from people literally PLEADING with them not to buy a house that I knew would be stretching their budget to the limit. You know what usually happened in those cases? They'd just go get another realtor who wouldn't make them so uncomfortable, or "disrespect them" by trying to "keep them down" or "put them in a house below their standards" or whatever.

And if I had a dollar for every customer of mine who insisted on buying a house with ZERO down payment - sometimes even negotiating that the SELLER pay all closing costs (in other words, they bought a house at a higher interest rate, with absolutely no personal investment on the front end), I could probably go to Cancun for a nice little vacation.

By the way, just for the record, as a realtor I refused to work with any lenders who did variable rate loans, and as a banker I refused to work with any bank which did those loans as well. Not many banks in my area have ever offered such loans for that matter.

The whole problem is that banks are lending money to people who don't understand the risks involved.

I hate to be so mean, but honestly, if a person is incapable of understanding that "variable interest rate" means "when interest rates go up, THIS interest rate will go up," they probably have no business even considering buying a house.

Home ownership is a HUGE responsibility. It's not like buying a washing machine, or even a car.

When I was working with customers in both real estate and in banking, here are some points that were critical - and that I made sure were covered:

1. Location, location, location.
2. Don't gamble on a variable rate loan.
3. Put at LEAST ten percent down - twenty percent is even better.
4. Remember that on top of your mortgage payment, you need to factor in property taxes and homeowner's insurance - this can add several hundred dollars a month to your mortgage payment.
5. One extra mortgage payment per year can shave off SEVEN years of your mortgage, so give yourself enough wiggle room in your budget to make as many extra payments a year as possible toward the principle.
6. When something breaks, there's no landlord to call - it's all on you. Be sure you have enough room in your budget to be able to call a plumber on the weekend, or replace a hot water heater, or pay for a new roof when a hail storm comes through.

Finally, let me point out something that often gets overlooked when people are demonizing banks. Loans give people who otherwise could not afford it, the chance to fulfill goals and dreams they have. "Nice people in suits" generally are not trying to screw people over. Customers come to THEM, they don't run out in the street knocking people over the heads trying to take their money and force them to buy houses, cars, boats, etc.

I find this whole "burn the banks" mentality very strange, because on one hand I keep hearing about how wicked banks are because they gave too many people too many loans, and now from my position as a banker (till a few weeks ago), all I heard was, "Banks aren't lending enough money!" Well, which is it? I'll tell you why the bank I worked for "wasn't lending enough money" - It wasn't for lack of trying, that's for sure, but the problem was two fold:

1. Banks have tightened up their lending processes, to help people AVOID foreclosures, defaults, etc. (Contrary to urban legend, banks do NOT want your house or your car or your motorcycle - they just want you to pay the loan as agreed). Now - I thought this was what the public wanted - a loan process that was more responsible and with less chance of default.

2. Bad credit has become much more common in this wrecked economy. The average credit score for Americans is about 720, out of a possible 850. With most major banks, you can get a non secured loan at a decent interest rate with credit as low as 680. With a 20 percent down payment, a person with a credit score as low as 625 can get a mortgage with a decent enough interest rate (probably around 6 percent). You can get a fabulous interest rate (about 4 percent for a house, and about 5 percent for other loan types) with a credit score over 750 and even as low as 3.5 percent with a 20 percent down payment. But honestly, if a person has a credit score below 625 and no money for a down payment, they don't need to even be CONSIDERING buying a house.

Anyway, the end result is that fewer people qualify for large loans. And if you don't qualify, it's a good sign that you just don't need to borrow any money right now.

By the way, interest rates are very, very low right now, and have been for at least eight years. If you're going to make a large purchase, honestly now is the time to do it!

 

[lunakilo]

Stupid or mislead by the bank....

The whole problem is that banks are lending money to people who don't understand the risks involved.

I hate to be so mean, but honestly, if a person is incapable of understanding that "variable interest rate" means "when interest rates go up, THIS interest rate will go up," they probably have no business even considering buying a house.

Home ownership is a HUGE responsibility. It's not like buying a washing machine, or even a car.

I agree.

I said stupid or mislead.

Some people just don't have brains, but think they know everything and everybody who try to tell them they are wrong about somthing they just don't listen. They onlt listen to the people who are saying what they like to hear. For example "yes, you can borrow the money to buy that very expencive house"

Some people are silly enough to think that the people at the bank are there to help them and not mainly to make money for the bank. I am sure there are plenty of nice people who work at banks who would not lend money to people who can not afford it, but there are plenty more who will.

We can argue about wether people who trust the people at the bank are stupid and thus put th blaim on the loan takers, or if they are being mislead and thus blaim the people at the bank, but either way "The whole problem is that banks are lending money to people who don't understand the risks involved."

By the way, interest rates are very, very low right now, and have been for at least eight years. If you're going to make a large purchase, honestly now is the time to do it!

Just did.