[quote sdrealtor]
I disagree that the 1st statement is not accurate. The bank is not recognizing a loss and it is not taking a loss. Are they making as much money as they hoped when the loan documents were first signed? Absolutely not!
Please show me where the bank is taking a loss.
[/quote]
Quite easily done. Remember that what the bank is lending out, is not their money. They have borrowed money to loan out to others. The banks have to pay interest on those notes. These notes are also ‘long term’ commitments, whose rates were set when the mortgage was first made. If it is costing the bank 3% on the money they borrowed to make the loan, and they are lending it out at 2% for the ‘new mortgage’.. they are taking a 1% loss per year on the mortgage.
This also does not factor in risk of never getting all of the principal back, the risk of the banks borrowing costs going up while still supporting the 2% mortgage.
[quote sdrealtor]
If I had a contract to earne $1M this year but got injured and only made $500K would you say I lost $500K?
[/quote]
If the contract was underwritten by borrowed money costing you $750K/year.. you would lose money.
If inflation ate away more than 0% of the value of the money per year.. you would lose money.
