(edit title) Cant work this out? Help settle a dispute Options

[Swinglish 1]

Can anybody explain this to me please.,... A friend says this is 7000kr a month interest ( I dont believe that could be possible) so just need to settle a dispute.

House cost 2.5m kr this is his finances below and his mrs tells me its that much interest??? Shes Swedish and my language skills are below par....

Thanks in advance for your usuall wealth of knowledge

HUSHÅLLETS EKONOMI
Inkomster+54 750kr
Skatt-12 743kr
Lånekostnader-1 234kr
Övriga kostnader-17 260kr
Utrymme:
23 513kr/mån

BOENDEKOSTNAD

Ränta+ 7 207kr
Amortering+694kr
Driftkostnad+2 977kr
Tomträttsavgäld+1 048kr
Månadsutgift=11 926kr
Fastighetsavgift+569kr
Skattereduktion-2 477kr
Ungefärlig boendekostnad
10 018kr/mån

KVAR I PLÅNBOKEN IDAG

Utrymme=23 513kr
Boendekostnader-10 018kr

Överskott/Underskott:
13 495kr/mån Ett överskott garanterar inte ett bolån. I en låneansökan tittar vi på fler saker, bland annat hur ett hushåll klarar kostnaderna på lång sikt.

[DamnImmigrant]

When you borrow money - and you're not a follower of islam - you pay INTEREST on the money you borrow. The amount of interest owed is based on what is called an INTEREST RATE.

Your question is: does 7000 kr sound correct on a 2,500,000 kronor loan? Paying 7000 per month would mean that the interest rate is somewhere around 3.4 percent. Then you show a monthly interest of 7 207 per month which would be about 3.5 percent interest.

I think I am paying an interest rate of about 2.9 percent - but do not quote me on that.

Now where lots of the Americans got into trouble is that they had variable rate loans where the interest rates would change according to market forces.

So lets say today they are paying 3.5 percent interest which means they are paying 7000 kr per month for the privilege of borrowing 2.5 mil. BUT NEXT MONTH their interest rate now goes up to 4.0 percent - this means that next month they will be paying about 8,300 kr per month! An increase of 1,300 kronor just because their interest rate increased by half of a percent!

This is all very basic knowledge to anyone who has borrowed money. I am assuming you have never borrowed money before.

[CTIDinÅrsta]

Yep it's 7 207kr per month.

Inkomst 54 750kr. Överskott:13 495kr/mån. Welcome to Sweden!

You can fix the your rate of interest for fixed term loans 1yr, 2 yrs, 5 yrs, 10 yrs if you want, You pay for the privilege but you know how much you'll pay each month. You can divide the total into smaller loans with different repayment terms (e.g. half fixed foR 5 years, 25% ove5 5 years and 25% over 1 year if you want)

Muslims pay interest too, in reality. It's just at a fixed rate from day one.

[Swinglish 1]

Hi thanks for your reply's.

Of course I understand you have to pay interest on borrowed monies, like if you borrow 10000kr over 3 months you pay back say 12000kr for the 'privilege' of the loan I get this, the interest is 2000kr. What I'm struggling with is if you borrow 2.5m and it's 7000kr Interest a month thats 7000 for 12 months say over 30 years which is 2,520,000kr....Interest! So at which point are you paying for the house? Or do you pay double for the privilege?

It can't be that hard to convert to Islam to get a better loan rate??

[Bender B Rodriquez]

Hi thanks for your reply's.Of course I understand you have to pay interest on borrowed monies, like if you borrow 10000kr over 3 months you pay back say 12000kr for the &# ... (show full quote)

Hi thanks for your reply's.

Of course I understand you have to pay interest on borrowed monies, like if you borrow 10000kr over 3 months you pay back say 12000kr for the 'privilege' of the loan I get this, the interest is 2000kr. What I'm struggling with is if you borrow 2.5m and it's 7000kr Interest a month thats 7000 for 12 months say over 30 years which is 2,520,000kr...Interest! So at which point are you paying for the house? Or do you pay double for the privilege?

It can't be that hard to convert to Islam to get a better loan rate?? ... (hide full quote)

I don't understand why you have difficulty to understand that.

In your house example the interest is about 3.5%, quite natural. Paying off the loan in not included in the interest, you have to do that separately. However, due to inflation, the outstanding loan of 2500000 will be much less worth after 30 years.

In you other example with 2000 every three months you have an effective interest of 80% which is much, much worse.

[elk200]

What you're all forgetting is the AMORTISATION on the loan. The interest payments will decrease over the loan life the more it is amortised. Hence, in the example given above, the interest won't amount to 2.5 million at the end of the loan life.

[DamnImmigrant]

They have an 85 year loan?!?!?!?!?

My rule with loans is - PAY DOWN THE PRINCIPLE AS FAST AS POSSIBLE! The less you owe, the more asset you own!

@Swinglish1 - "...if you borrow 2.5m and it's 7000kr Interest a month thats 7000 for 12 months say over 30 years which is 2,520,000kr...Interest! So at which point are you paying for the house ... It can't be that hard to convert to Islam to get a ..."

To convert to islam, just say "There is no god but allie, and the Mo man was his profit" - that's all there is to it; and you have now condemned your immortal soul to an eternity of living H.., but I digress.

@Swinglish1 - you DO NOT understand how loans work because the questions you are asking are at the very heart of any loan.

Just to clarify - the following explanation is directed ONLY at the loan and not the other payments that are also included in the mortgage payment.

When you take out a loan, you have the PRINCIPLE and you have INTEREST. The PRINCIPLE is the amount of money that is OWED on the loan. When you take out a 2.5 million kr loan the PRINCIPLE is 2.5 million. The INTEREST is the amount of money that is OWED on the PRINCIPLE. ANY MONEY paid for the INTEREST has NO affect on the PRINCIPLE owed on the loan.

A monthly payment schedule means that once a month you send in your loan payment. Part of that payment pays off the INTEREST and any money LEFT OVER then goes to PAY DOWN the PRINCIPLE. The INTEREST absolutely has to be paid whereas the PRINCIPLE does not always have to be paid! The good news is that every time you pay money on the PRINCIPLE, the principle is reduced AND therefore the amount of INTEREST owed on the loan is also reduced.

So @Swinglish1 to answer your question - "So at which point are you paying for the house" - You are paying for the house every time you put money to pay down the PRINCIPLE.

If you send in 8,000 kronor on a 2.5 mil loan, 7,000 goes to the INTEREST and 1,000 goes to the PRINCIPLE. The 1,000 reduces the loan to 2,499,000.00 kr and the next month you are only charged interest on the 2.499 mil you owe. The next month your principle is reduced to 2,498,000 kr. As @elk200 points out, this is called AMORTIZATION.

@elk200 - "... forgetting is the AMORTISATION on the loan. The interest payments will decrease over the loan life ... the interest won't amount to 2.5 million at the end of the loan life."

That is correct @elk200 - based on a 30 year loan, they will have payed back the original 2.5 million kronor and an additional 1.5 million kronor for the interest. This means that they will need to pay 11,200.00 per month (3,900 kr for the principle and the other 7,200 kr for the interest) just to pay off the loan in 30 YEARS. After 30 years they will have paid 4 million kronor for their 2.5 million Kronor loan!

Once again - that DOES NOT include any insurance, taxes or other fees that are ALSO REQUIRED to be in the mortgage payment! A payment of 11,200.00 per month for 360 months (30 years) just to cover the loan.

BUT EVERYONE MISSED THE MOST INCREDIBLE PART --- If I am reading it correctly, they are only putting 694.00 kr per month towards the principle!!!

At 694.00 kr per month going to pay off the principle of the loan, it will take 85 YEARS to pay off the loan and will result in a total cost of 8,100,000.00 KRONOR!!! This means that in the end they will pay back the 2.5 mil and an additional 5.3 million in interest! This is more than 2 TIMES as much money as they borrowed!

--

So @Swinglish1, the important thing to remember is that after paying the interest payment - ANYTHING extra that you can pay towards the principle will go a long way to reducing the length of the loan and how much interest you will eventually pay.

Here's how the principle payments shorten the loan and increase your asset.

694 kr per month means an 85 year loan with total interest of 5.3 million kronor
3900 kr per month means a 30 year loan with total interest of 1.5 million kronor
4900 kr per month means a 26 year loan with total interest of 1.3 million kronor
7900 kr per month means an 18.7 year loan with total interest of 900,000 kronor

[gplusa]

My experience with Swedish mortgages is that it's not so cast into concrete from Day One. Because of the low interest rates in Sweden (compared to those in NZ), we chose to take out a mortgage in Sweden and send our savings money back to NZ where the deposit rate was higher than the Swedish borrowing rate.

In our case, our mortgage was essentially a short term loan with an indefinite automatic rollover. That offered us a lot of flexibility with repayments. From memory we decided intitially on a 2 year fixed period. We agreed on the amount of interest to be paid, the amount of principal to be repaid (determined by us), and the period of the term. We could pay a little extra on the principal during the period if we chose, but not a lot more. If we paid off the mortgage during that 2 year period, we also had to pay for the loss of the future interest payments. But, only that interest which the bank would have received during the remainder of that 2 years period, not for the lifetime of the mortgage. Once that 2 year period was completed, the existing conditions carried forward into the next period. Unless you agreed otherwise.

A key point was that, on the 2 year anniversary day, for that day only, the existing agreed conditions no longer applied. On that day, you negotiated again for the next period. The amount of interest to be paid during the next period was recalculated based on the outstanding amount of principal on that day. The amount of principal to be repaid during the next period could be adjusted up or down as needed. The length of time for the next period could also be adjusted to 1 year, 2 years, 5 years etc. On that day you could also make lump sum payments of any value, without any penalty payment for the bank's loss of future interest. We chose one of the anniversary dates to repay our mortgage in full. We were able to fully discharge our mortgage after only 4 years with no penalty for early repayment. I don't know how it works in other countries, but that was a huge improvement on borrowing conditions in NZ.