What, exactly, do banks do to EARN the interest on a mortgage loan?

As a first time homebuyer looking at the financial side of things, I am beginning to feel that mortgage lending is a huge racket. Not just sub-prime ARMs, but all “free-market” mortgages in general.

Maybe I am missing something or completely ignorant, but the dots are not connecting in my head. And before the bankers and property investors out there jump down my throat, let me give you an example: I am not trying to be facetious, this is serious stuff!

On a $ 250K loan, with 4.8% interest and 5% down, the monthly payment (excluding tax and insurance) works out to roughly $ 1200 a month. Taking that over 30 years the TOTAL PAID IN on the mortgage comes out to $ 432,000.

That means the bank makes $ 182,000 in interest total, roughly $ 6000 a year. Not to mention the money they make by reinvesting that profit and charging interest on the reinvestment!

Thats a LOT of money. Almost as much as the house that was financed.

What DO the banks DO to justify charging me so much money over so many years?

Please don’t tell me that they “allow” me to borrow money and thus can charge me whatever they want. That is a strawman argument since they did not have to “work” much to get the money they are “allowing” me to borrow. They just borrow it themselves at a much lower rate.

Show me the $ 6000 worth of work that is done in my name every year for the next 30 years. Or if it’s a million dollar home, show me how the bank EARNS $ 24000 a year.

If you are a lender, please don’t be offended. I am asking questions about the SYSTEM, not you personally or your company.

To clarify, I don’t expect to get the money for free. I just don’t think the cost matches the effort.
Thanks Moore6…..I didn’t consider that a 1200 payment is going to be similar to a 300 payment in 30 years (due to inflation)

That begs a second question….how much does your home need to appreciate to keep up with inflation?

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