This is regarding my father in law’s home. He doesn’t speak English well, and he tells me that since the very day he bought the home, he was under the impression that it was a 15 year loan.
I had the bank send me the original contract.. here are the basics:
-In return for a loan that I have received, I promise to pay US $ 83,250.00
-Interest will be 7.875%
-My monthly payment will be in the amount of $603.62
-I will make my first payment on Dec. 1, 2003.
-Maturity date is Nov. 1, 2033
Okay, so if first payment is on Dec. 1, 2003, and maturity date is Nov. 1, 2033- that means this is a 30 year loan.
But $603.62 for thirty years plus a 7.825% interest = well over $200,000!
Is it legal to charge more interest than the price of the property itself?!
I am having my father look for his original copy of the contract– but I’m wondering if someone pulled a fast one on him.
I guess I sound ridiculous asking this, since everyone that is answering says it is completely normal. I have never purchased a home and did not realize that the bank can charge $120,000+ worth of interest on a $83,000 loan. That’s crazy!
Well now I know! I hope I never sign a contract under terms like that.
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sounds normal to me.
Of course it is. The mortgage company would not lend money for a day without interest.
That’s normal. For a 30 year loan you end up paying a LOT of interest. He has a high interest rate and might consider refinancing if he has good credit.
yes it is a 30 year note and money is not free. The rest over the $83,250 is called interest and very normal
Was he taken advatage of? I have no idea as to any of the circumstances involved in the loan and income at that time.
I am a mortgage banker in TN
Yes, it’s legal to charge more interest than principal. Interest has no bearing on the price of the home, it’s simply how much the loan company is charging to let him borrow the money.
The terms look correct to me with that interest rate…
With good credit he could do a refi. But avoid ARM loans. They are the adjustable ones that people lost their homes over a few years ago.
You might notice that most of the interest in the loan term is payed within the first 5 years of the loan, then more and more, the payment actually goes toward the payoff and not the interest. This is so the loan servicer get their investment if you decide to pay it off early.
Of course it is legal. It is a normal mortgage for 30 years with interest compounded annually.
Its legal. But you should always confirm with an attorney specially before you sing the contract. Have it reviewed by a Real Estate attorney. But don’t ignore the obvious. Lenders are only willing to lend because they can double their investment for themselves or their investors. Making a profit is not illegal. Like any other business lenders are in it to make a profit on their product. Your grocer can’t charge $3 a pound for tomatoes that nature grows for free. There is some serious overhead in getting that tomato from somewhere in Chile to your table.
There is obviously a lot of mortgage fraud out there. You may refinance out of that high rate into a lower interest rate. Get a new mortgage for 15 years or less, pay more than the minimum payment and you can pay it off in a short amount of time.
That sounds very similar to my mortgage. Interest rates are lower now though so he could try to refinance.