OK, Chuck, I apologize. The *interest* paid each month is in fact 20% more
when the rate jumps from 5% to 6%. We are both right, as you say...since
the *total payment* jumps just under 12%.

Joe, on the other hand, doesn't seem to have a clue. He concluded we were
*both* wrong...when in fact we were *both* right. Does that make him twice
as wrong? ;-)




"Gould 0738" wrote in message
...
Actually, you're *both* wrong--although you are closer with respect to
the 15
year mortgage.

Joe Parsons

Actually we're both right, that is if NOYB check his amortization chart
before
typing away. We are speaking about two completely different concepts,
however.

I didn't ever say the monthly payment went up 20%, just that 6% money is
120%
the cost of 5% money. Math was never my strongest subject, but I would
invite
anybody to show me where 5 X 1.2 doesn't equal 6.

NOYB said I lacked a brain because the monthly payment doesn't go up 20%
at the
higher rate. No, it doesn't. Part of the money paid back each month
reduces the
principal balance.

I thought the guys on the right were supposed to be such financial
geniuses!
I guess the tax cuts should have been the first clue. :-)

"jps" wrote in message
...
"John Gaquin" wrote in message
...

"jps" wrote in message

I've heard our increased productivity is indeed due to longer hours
and
reduced time off.


(sigh) Learn the words. What you've described above is "production".
Increased _production_ is due to longer hours and reduced time off.

Productivity is a rate. Units per man-hour; giga-units per year;
however
you want to measure it is up to you, but it is a rate.

JG


Could also be measured by output per man hour paid.

Whatever way you try to spin it, *productivity* has nothing to do with
working the same workers extra hours.

"Harry Krause" wrote in message
...
NOYB wrote:

"Harry Krause" wrote in message
news

It's a giggle to watch you grasp at any passing straw as you try to
rationalize the failures of your dumb-as-a-post president.

Grasping at straws, eh?

"Household employment is up 1.19 million so far this year, compared with
the
decline of 437,000 in nonfarm payrolls."

That's a net gain for you mathematically impaired.





Uh huh. Perhaps you ought to stop sucking down so much laughing gas.
This president has lost more jobs per month than any other president
since Herbert Hoover.

That's an interesting line you keep repeating...too bad it won't be true by
the time 11/04 rolls around.

Sorry, but it doesn't work quite that way. Loans are amortized by a fairly
complex equation, and your last statement is untrue. When the interest rate
changes for the same principal balance and term, both the interest and
principal
components of the payment will change.

Joe Parsons


Hoo boy. :-(

Where are you coming from with this?

You're trying to make a very simple idea unduly complex.

If I borrow $500,000 for any number of years, 500,000 of the dollars shown on
the total of payments line of the disclosure will be used to repay the
principal portion of the loan. Not a few less if the rate is X, vs a few more
if the rate is Y- or vice versa.
It costs 500,000 plus interest to pay back
a 1/2 million dollar loan. The *only* variable that can enter into the "total
of payments" math is the interest cost of the money, (including fees, etc).

We would agree, I'm sure, that a loan for $500,000 from Bank X for a certain
term should have the same monthly payment as
a loan for an identical amount, at an identical rate, for an identical period
of time, from Bank Y.

If we compare two $500,000 loans from the same bank, one at 5% and one at 6%,
the 6% loan will have a higher payment than the 5% loan and it is *not* because
the contract calls for any principal amount other than $500k to be paid back.
The difference in monthly payment is generated
exclsuively by the difference in interest rate if the term is identical.

Look at an amortization book. There are only four variables that combine to
determine a monthly payment: Principal balance, interest rate, periods at which
the payment is collected and term of contract. When the principal balances are
the same and the term is the same, (and if the periods of scheduled collection
are the same) if there is a difference in payment between two contracts it can
only be because the interest rate is different.

"Joe Parsons" wrote in message
...
On 07 Sep 2003 01:33:50 GMT, (Gould 0738) wrote:

Just when it seems that you do indeed *have* a brain, you post something
like this. If a mortgage rate goes up from 5% to 6%, the monthly
payment on
a 30 year mortgage goes up by a little under 12%...not 20%.

Sorry, but I'm not the one who needs to see the Wizard about a brain.
When
money costs 6%, it *is* 120% as expensive as when it costs 5%.

"So, why doesn't the payment go up by 20?" inquires NOYB.

Good question, Doc. It's because your monthly payment includes principal
as
well as interest, and the prinicpal portion of the payment doesn't
increase,
only the interest.

Sorry, but it doesn't work quite that way. Loans are amortized by a
fairly
complex equation, and your last statement is untrue. When the interest
rate
changes for the same principal balance and term, both the interest and
principal
components of the payment will change.


But the interest amount in each payment changes exactly the same as the
percent change in the rate on a 30 year mortgage. If the rate jumps from 5%
to 7% (a 40% increase), the amount of interest paid in each payment also
increases by 40%...even though the total payment increases by a much smaller
amount. That means Gould was right and I was right.

Thanks Chuck a clear explanation & to us with a few miles up pretty
bloody obvious; now about you write something on how we can get our
daughters & sons'-inlaw to actually believe it, rather than believing
the spruiker real estate agents???

K


Gould 0738 wrote:
That's not an acceptable answer even if it does happen to be true. In
politics it ALWAYS has to be someone's fault, and it's ALWAYS the
other guy. If the economy is really so bad, I'd like to know who
these people are bidding up the price of housing to stratospheric
levels.


The Federal Reserve.

Home buyers are the ultimate "payment buyer." The percentage of folks writing
out a check for $468,900 to move into a rickey-tickey cul-de-sac clone 40 miles
from town in "New Westchester Estates" (or some other pretentiously named
community) is likely to be in the low single digits. Even if you can afford to
pay cash for housing, the interest rates make it more atractive to borrow.

Housing prices are no more logical than were the prices of stocks in 1999.
"It's worth it because that's what the last guy paid for the same offering, and
it's going up in value so fast we have to buy now or we'll never afford it
again!"

While declining interest rates have allowed payment buyers to pay some very
high prices for housing of late, those same interest rates cannot continue to
fall. My wife recently mentioned to me that the overnight Fed Funds rate is
hovering around 1 percent. That has to be about the bottom, unless investors
are going to be willing to pay to have their money stored for them. :-)

When those interest rates start to rise, as they will to cover the cost of the
Iraq invasion and attract investors to cover our
record national debt, housing prices could be a short-term victim. People might
want to move to a newer, nicer, house but if stepping up $100k in mortgage
balance at a higher interest rate changes that just barely doable $2500 a month
mortgage note to $4100, a lot of people will decide to
"stay put" instead. At that time, those who
*must* sell will have no choice except to dump the price as low as they can
manage to go, and that will bring the price of all similar houses down as well.

Higher end houses in areas with a lot of unemployment have not appreciated at
all, and have declined in supposed "value" in many cases. Seattle is a good
example.
Our own place is a humble little tarpaper shack, of course, but our run down
dump is surrounded (by outraged neighbors) in one of the priciest districts in
town. We couldn't afford to buy even our meager little hut if we moved to
Seattle today, but we have lived at our present address about ten years.

As the dot.com boom roared on, housing prices in our neighborhood of 100-year
old
wood frame houses blew clear up into the seven digit category. We were shocked
when prices crept up to this level, but the houses sold fairly quickly and in
many cases before there was an advertised reduction in the listing price.

Some of those "Million dollar" houses have since resold. The one on a corner a
block away started at $1.1mm, dropped to $950k, dropped to 895, 875, 845, 825,
and finally $795k before the "SOLD" sign went up. $795k was less than we
remember the house advertised for when it last sold- so it's likely the latest
reseller sacrificed some of his initial down payment just to get rid of the
house at this point....and of course just forget any "appreciation."
Some houses in the neighborhood have started extremely high, dropped a few
steps, and then been withdrawn from sale.

Low end houses (meaning in the low six-figure category in W. Wash) have held
their own and shown some appreciation in this region, but there is a lesson to
be learned from the decline in prices for the
highest priced homes....the price of a house is not supportable unless it is
affordable to enough buyers to create competitive demand.

When the mortgage rates rise much faster than wages, something has to give way.
Price is usually that something.
Remember that when 5% mortgages go to 6%, the interest rate has gone up only 1%
but the cost of money has increased by a factor of 20%....(6 being a number
120% as large as 5). With workers having to strike to get 2, 3, or 4% annual
raises these days, (and many others willing to forego any sort of raise and
just grateful to be working at all) an overnight 20% increase in the cost of
*anything* will put a damper on demand for that item.

I can show you a loan, Chuck, that would have your head spinning. The one I
have for my dental practice is a ten year note. The only way they would
lend me 100% right out of school with no co-signer was with very unfavorable
loan terms. My payoff in the first 3 years was the fully amortized amount
of the loan! In years 4 through 7, my payoff is the "net present value
discounted by prime". Essentially, what this means is that my interest
"penalty" (althought they won't call it that) is higher when prime is lower.
If prime was around 8%, my penalty would be about 5% of the outstanding
simple interest payoff. With prime around 4%, my "penalty" is about 20% of
the simple interest payoff. In years 7-10, the loan reverts back to a
simple interest payoff...so I'm essentially stuck in the loan for 3 more
years, since I've paid 4 years already.

When I signed the note, they showed me a simulated payoff amortization
schedule...but they estimated prime at 8.5%. In retrospect, this was
deceitful as hell. With prime currently at 4%, my payoff now is almost
20%higher than I believed it would be. I still have the original simulated
payoff amortization schedule on their letterhead, and I'm researching my
options to legally get out of this loan. I doubt I really have any,
however.

Essentially, it's the dental loan equivalent of a rule of 78's auto
loan...but much worse since prime is at an all-time low.





"Gould 0738" wrote in message
...
Sorry, but it doesn't work quite that way. Loans are amortized by a
fairly
complex equation, and your last statement is untrue. When the interest
rate
changes for the same principal balance and term, both the interest and
principal
components of the payment will change.

Joe Parsons


Hoo boy. :-(

Where are you coming from with this?

You're trying to make a very simple idea unduly complex.

If I borrow $500,000 for any number of years, 500,000 of the dollars shown
on
the total of payments line of the disclosure will be used to repay the
principal portion of the loan. Not a few less if the rate is X, vs a few
more
if the rate is Y- or vice versa.
It costs 500,000 plus interest to pay back
a 1/2 million dollar loan. The *only* variable that can enter into the
"total
of payments" math is the interest cost of the money, (including fees,
etc).

We would agree, I'm sure, that a loan for $500,000 from Bank X for a
certain
term should have the same monthly payment as
a loan for an identical amount, at an identical rate, for an identical
period
of time, from Bank Y.

If we compare two $500,000 loans from the same bank, one at 5% and one at
6%,
the 6% loan will have a higher payment than the 5% loan and it is *not*
because
the contract calls for any principal amount other than $500k to be paid
back.
The difference in monthly payment is generated
exclsuively by the difference in interest rate if the term is identical.

Look at an amortization book. There are only four variables that combine
to
determine a monthly payment: Principal balance, interest rate, periods at
which
the payment is collected and term of contract. When the principal balances
are
the same and the term is the same, (and if the periods of scheduled
collection
are the same) if there is a difference in payment between two contracts it
can
only be because the interest rate is different.

NOYB wrote:

$100,000 mortgage at 5% for 30 years is $536.83 per month.

$100,000 mortgage at 6% for 30 years is $599.55 per month.

Using your numbers:

$536.83 x 360 pmts = $193258

Cost of 5% money in your example is $93,258.

$599.55 x 360 pmts = $215838

Cost of money in your 6% example is $115, 838

Here's an interesting observation: The 20% cost differentiation only applies
when working the numbers from the top down!
It's *greater* when working the numbers from the bottom up.

$93,258 divided by $115,838 equals .80 (so there's the 20% I've been talking
about)

However, expressed as a percentage of increase the number is somehow larger
than 20%! Proof: 93258 x 1.2 = 111,909,
a few grand short of the actual new cost number at $115,838.

(Again, I'm just taking your figures at face value without checking them.)

From that perspective, 6% money can be shown to even *more* than 120% the cost
of 5% money, not less.

The mortgage payment at 6% is 11.683% more than the payment at 5%.

How am I wrong?

You're not "wrong" exactly, you're just using an increase in total payment to
argue that *interest costs* don't increase as much as I have claimed.

There is no number of 11.683% or even 12% that comes anywhere close to
expressing the increased cost of the money when borrowing at 6% vs 5%.

"jps" wrote in message
...
"NOYB" wrote in message
m...

No, the proof is in the unemployment rate. Surveyed businesses
layoff
workers, yet the unemployment rate goes down. Why? Because the
unemployment rate surveys households...and that means the people in
those
households are working somewhere. Where are they working?
Obviously in
businesses not tracked as closely by the payroll data (ie--small
businesses).

And I had understood the jobless rate was determined by claims made at
unemployment offices.

Are you using Fox News surveys?


That is new unemployment claims. That is a different statistic.
Unemployment is done by survey.

del cecchi

I can show you a loan, Chuck, that would have your head spinning. The one I
have for my dental practice is a ten year note. The only way they would
lend me 100% right out of school with no co-signer was with very unfavorable
loan terms. My payoff in the first 3 years was the fully amortized amount
of the loan! In years 4 through 7, my payoff is the "net present value
discounted by prime". Essentially, what this means is that my interest
"penalty" (althought they won't call it that) is higher when prime is lower.
If prime was around 8%, my penalty would be about 5% of the outstanding
simple interest payoff. With prime around 4%, my "penalty" is about 20% of
the simple interest payoff. In years 7-10, the loan reverts back to a
simple interest payoff...so I'm essentially stuck in the loan for 3 more
years, since I've paid 4 years already.

When I signed the note, they showed me a simulated payoff amortization
schedule...but they estimated prime at 8.5%. In retrospect, this was
deceitful as hell. With prime currently at 4%, my payoff now is almost
20%higher than I believed it would be. I still have the original simulated
payoff amortization schedule on their letterhead, and I'm researching my
options to legally get out of this loan. I doubt I really have any,
however.

Essentially, it's the dental loan equivalent of a rule of 78's auto
loan...but much worse since prime is at an all-time low.


No doubt, but such a loan does not reflect the type of terms incorporated into
residential home mortgages. Our discussion was, I believe about how rising
interest rates could affect the affordability of housing and dampen the current
market.







"Gould 0738" wrote in message
...
Sorry, but it doesn't work quite that way. Loans are amortized by a
fairly
complex equation, and your last statement is untrue. When the interest
rate
changes for the same principal balance and term, both the interest and
principal
components of the payment will change.

Joe Parsons


Hoo boy. :-(

Where are you coming from with this?

You're trying to make a very simple idea unduly complex.

If I borrow $500,000 for any number of years, 500,000 of the dollars shown
on
the total of payments line of the disclosure will be used to repay the
principal portion of the loan. Not a few less if the rate is X, vs a few
more
if the rate is Y- or vice versa.
It costs 500,000 plus interest to pay back
a 1/2 million dollar loan. The *only* variable that can enter into the
"total
of payments" math is the interest cost of the money, (including fees,
etc).

We would agree, I'm sure, that a loan for $500,000 from Bank X for a
certain
term should have the same monthly payment as
a loan for an identical amount, at an identical rate, for an identical
period
of time, from Bank Y.

If we compare two $500,000 loans from the same bank, one at 5% and one at
6%,
the 6% loan will have a higher payment than the 5% loan and it is *not*
because
the contract calls for any principal amount other than $500k to be paid
back.
The difference in monthly payment is generated
exclsuively by the difference in interest rate if the term is identical.

Look at an amortization book. There are only four variables that combine
to
determine a monthly payment: Principal balance, interest rate, periods at
which
the payment is collected and term of contract. When the principal balances
are
the same and the term is the same, (and if the periods of scheduled
collection
are the same) if there is a difference in payment between two contracts it
can
only be because the interest rate is different.