Giving Jeff Bezos a loan for his cabin-by-the-lake for $1 million? Well, since he's worth $100 billion, odds are good that he can pay you back the mortgage you're writing for him (and yes, we know...stupid example, because you'd have to be a qualifying bank to write a conforming mortgage, i.e. one available for the mortgage tax credit up to $500k, but humor us here.) So...Jeff's a good risk. His price for renting our mortgage money? Just 4%.
Now meet Bob-the-Riverboat-Gambler. Bob's worth millions. Then nothing. Then millions. Then nothing. Bad risk. So Bob, if you want our loan, we're going to risk-adjust your mortgage price (and terms). You'll have to get PMI, or private mortgage insurance, so that, when you likely default, we can still collect...and you'll have to pay 12% interest for the loan. You're just too risky. Don't like it? Go down the hall and see Benny the Loan Shark. Follow the baseball bat logos on the ground to get there.
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Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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