Why is a home loan (mortgage) cheaper than gold loan?
My doubt is whether Govt./Reserve Bank of India gives any explicit incentives to banks to offer cheaper home loans ? Currently NO. In the past Loan against GOLD was considered priority sector lending [Loans to poor and agriculture etc]. Every Bank need to lead around 25% to priority sector. Hence quite a few Banks gave loans relatively cheaper to todays rate rather than giving it as Farm loan that almost never get recovered. It is no longer the case now as Loan against GOLD is not considered priority lending. If it were just demand/supply, I feel that gold loans should have been cheaper  It is demand and supply. There are quite a few reasons for this; Why is a home loan (mortgage) cheaper than gold loan? It has to do with risk. Lending money secured by gold is inherently riskier than a loan secure by your home. Increased risk means the lender must charge more. That's why home loans are cheap compared to loans for other purposes. Home loans are secured by the house. Houses are assets that hold and usually retain some value. Houses are easy to track down (they can't be hidden or moved) in the event that you don't repay your loan. Houses are reasonably liquid, they can be resold to pay off a defaulted loan.
"The PMI premium you pay is dependent on a very large number of variables in the finance market. Mortgage insurance, at the higher inter-bank levels, is handled with credit default swaps (the ones you've been hearing about on the news for the past 4 years), where the lender bundles a block of mortgages, takes them to a guarantor like AIG or Freddie Mac, and says ""We bet you that these mortgages will default this month, because the homeowners have little or no equity to deter them; if we win, you agree to swap these debts for their current face value"". The lender examines the mortgages, calculates the odds of a default severe enough that the bank would come to collect, using complex environmental heuristics, multiplies by the value of the potential payout, adds a little for their trouble, and says ""well, we'll take that bet if you pay us $X"". The bank takes the deal, then divvies up that cost among the mortgages and bills the homeowner for their share. The amount you pay for PMI can therefore depend on pretty much anything in this entire process; the exact outstanding amount and equity status of your loan, the similar status of other mortgages your loan will be bundled with for assessment, who the guarantor is, what exact heuristic they use to come up with an amount, the weighting the bank uses to divvy it up, and how much they actually pass on to you.  Most of these same variables are at play when you shop for actual insurance for your car or home, which is why your premiums will go up or down with the same insurer and why someone else always seems to have a better deal (pretty much every insurer can say that ""drivers who switched saved an average of $X""; of course they did, otherwise they wouldn't have switched). Thinking of it in those terms, it's easy to see how this number can vary widely based on numbers you can't see. You're free to say no, and it will cost you nothing right up until you sign something that says you agree to be penalized for saying no. While the overall amount of the payments does decrease, the PMI has gone up, and that's money you'll never see again just like interest (except you can deduct interest; not PMI). I would do the tax math; find out how much you could deduct over the next year in interest on your current loan, then on their proposed terms, and what the resulting tax bills will be from both. You may save monthly only to pay more than you saved to Uncle Sam at the end of the year. You're also free to negotiate. The worst they can do is stay firm on their offer, but they may take a second look and say ""you're right, that PMI is rather high, we'll try again and see if we can do better"". They can either negotiate with their insurer, or they can eat some of the PMI cost that they're currently passing on to you." The issue is that housing price increases can't sustain themselves indefinitely, in comparison to the rental market. Increases drive people back to the rental market, which brings the rental market up.  Also, just as a AirBnB would drive property prices to go up, it also allows people who would otherwise not be able to buy a house to make the house purchase. Example - Loftium is a mortgage lender that will give you a cheaper loan if you put your house on AirBnB. That enables people to purchase a home when they otherwise wouldn't be able to. So over time (many years), the market should work itself out.  In the short term, AirBnB can definitely cause market fluctuations. For example, it might enable people to continue to own their homes during a depression, which would cause a supply shortage.   The only factor that affects ownership prices differently than rental prices in the long term would be regulation. Here's a [good article](http://www.sightline.org/2017/08/14/why-seattle-builds-apartments-but-vancouver-bc-builds-condos/) about that aspect specifically. Use the chrome extension called Xray - the complete article is below  Why Goldman Sachs Seized a Client’s 217-Foot Yacht Wall Street banks’ latest gold rush is making loans to wealthy clients; collateral includes Warhol and rare wine collection The yacht ‘Natita’ is listed for $39.9 million. The yacht ‘Natita’ is listed for $39.9 million. PHOTO: DUTCHMEGAYACHTS By Liz Hoffman Aug. 10, 2017 5:30 a.m. ET 158 COMMENTS Goldman Sachs Group Inc. GS 0.33% owns hundreds of billions of dollars of stocks, bonds and commodities. Add to its portfolio: a 217-foot luxury yacht called Natita.  The story behind the boat begins with a 2014 loan to a prized Goldman client, billionaire Texas oilman William Kallop. It ends with Goldman suing its own client and the U.S. Marshals last month swooping down on a West Palm Beach marina to impound the yacht—which boasts a movie theater, Jacuzzi and helipad.  Goldman’s nautical trophy is a strange but inevitable outcome of Wall Street’s latest gold rush: lending to wealthy clients, the loans backed by everything from Warhols to wine.  These loans, which are growing quickly at firms such as Goldman, Morgan Stanley and UBS Group AG, are an exotic spin on the most basic thing banks do: lending money to people. They have the added benefit of building loyalty among prized, ultrawealthy clientele.  RELATED  Wall Street Needs You to Borrow Against Your Stock (July 27) Like any loans, though, they can go bad and leave banks holding assets that aren’t easy to value or sell. Goldman will likely auction Natita, which already has been on the market for almost two years with no takers.  A Goldman spokesman declined to comment on the case. Mr. Kallop didn’t respond to requests for comment. A lawyer for Mr. Kallop declined to comment.  “If you do it right, it’s a great business and clients will absolutely love you for it,” said Bruce Holley, a partner at the Boston Consulting Group who advises private banks on wealth-management strategy. “But there are a lot of ways to mess up.”  Banks pushed wealth lending in recent years against a backdrop of increasing deposits and tepid demand for traditional loans. Goldman’s private bank has quadrupled its overall lending balances since 2012 to $29 billion. Morgan Stanley wealth-loan balances are up 420% since 2012 to $74 billion.  The largest chunk of wealth loans are mortgages and loans backed by stock portfolios. A smaller but growing segment is secured by valuables such as classic cars, hedge-fund stakes, and even rare violins.  Wealth loans are especially profitable for banks because the revenue they generate is shared less generously with brokers than trading commissions and other fees.  Banks say these loans are safe because they already know the borrowers, their assets, and their ability to repay. And unlike, say, credit cards, these loans have collateral and often a personal guarantee as well. Goldman said in a February filing that the value of collateral in its wealth loans “generally exceed[s]” the loan amount.  Morgan Stanley and Deutsche Bank AG have lent against the art collection of hedge-fund billionaire Steven A. Cohen, who owns works by Andy Warhol and Pablo Picasso, according to Connecticut state filings. Top Blackstone Group LP executives including founder Stephen Schwarzman have borrowed from UBS against their stakes in the private-equity firms’ funds, New York filings show.  Goldman lent to natural-gas wildcatter Aubrey McClendon against his wine collection, according to an Oklahoma filing. Executives joked the collateral was “particularly liquid.” After Mr. McClendon’s death in 2015, the collection—heavy on rare Bordeaux—was auctioned for $8.4 million. Goldman made its money back.  Although not as well-known as those borrowers, Mr. Kallop was the kind of client whom private banks court.  In the 1970s, he joined a family-owned marine-services company called McAllister Towing &amp; Transportation. A legal dispute in 1993 resulted in a split of the company. The tugboat and ferry operations stayed with the family. Mr. Kallop took the offshore oil business, which he built over the next two decades into a portfolio of drilling rights, rig operators and construction arms.  He sold the business for nearly $1 billion in 2009 to a consortium of Colombian and Korean investors. Mr. Kallop then dabbled in investing, taking a 7% stake in energy company Quicksilver Resources and buying a 300-year-old liquor distillery in Peru.  He spent lavishly, acquiring three Gulfstream jets and at least eight residences, including a Peruvian mansion, two homes in the Dominican Republic and a working cattle ranch in Texas, according to property record, lawsuits and people who have worked for him.  And he bought yachts—at least seven of them over the past eight years.  In addition to Natita, which he bought in 2010 and named for his mother-in-law, Mr. Kallop’s fleet includes Bad Girl, moored in the Dominican Republic, and Honey Fitz, a 93-footer used by President John F. Kennedy that he bought at Sotheby’s Camelot auction in 1998 and restored.  Another yacht, La Diva, which was once owned by Ivana Trump, was destroyed in a fire.  A few years ago, Goldman came calling. The Wall Street firm’s private bank manages some $450 billion in assets for 11,500 ultrarich clients, and was developed in the 1980s to help business owners like Mr. Kallop manage their windfall after a sale.  Mr. Kallop became a client. In 2014, he borrowed $21.2 million from the bank to buy a 12,000-square-foot Tahitian-inspired oceanfront mansion just down the beach from Mar-a-Lago, President Donald Trump’s private club in Palm Beach, Fla., county records show.  In 2014, Mr. Kallop borrowed $32 million from Goldman against the Natita and Bad Girl, court records show. The loan, the maritime equivalent of a home-equity loan, carried an interest rate of three percentage points above the London interbank offered rate.  But then Mr. Kallop hit money troubles, according to former employees and acquaintances. He put off upgrades to the boats, which were showing signs of wear—bad enough for a March 2016 charter group to walk off Natita in Nassau, a former crew member said.  Goldman ordered periodic valuations of the yacht after making the loan, according to the crew member.  Mr. Kallop laid off crew members and put Natita up for sale in 2015 for €59.5 million ($67 million at that time), then dropped the price to $57.5 million last year, according to court documents. He sold a second Palm Beach house in April 2015 for $19 million. Goldman alleges he stopped paying back on the loan last November.  Three crew members, including the captain, were recently awarded roughly $90,000 in back pay by a Florida court. A Texas judge last month awarded his former bodyguard more than $500,000 for unpaid services. Mr. Kallop also owes the Florida marina where Natita is docked hundreds of thousands of dollars in fees, employees said.  Eventually, Goldman filed suit in a Miami federal court to seize the boat in a maritime version of a foreclosure. Acting on a judge’s orders, U.S. Marshals impounded Natita at a West Palm Beach marina, where it remains.  Goldman’s first move as owner-in-waiting: buying $67,000 worth of fuel to keep the yacht’s generator running, according to court filings.  Today, the yacht is listed for $39.9 million, according to broker​Worth Avenue Yachts. The outstanding balance of the loan owed to Goldman is roughly $28 million.  Write to Liz Hoffman at liz.hoffman@wsj.com "I took a second mortgage when I moved house because I had a long-term fixed rate mortgage that would have incurred punitive fees if I had cancelled it. Rather than doing that I took a second mortgage over the same term for the difference. As my second mortgage was with the same lender, they still had ""First Charge"" on the property (This means that in the event of default they have first call on the property to recoup their losses), so the interest rate was not higher (actually it was slightly less than my first mortgage). My case is not that usual, normally a 'second mortgage' is with a separate provider that takes a ""Second Charge"" on the property. The interest rates are normally higher as a result as there is more chance that the lender will not recoup their money in case of a default as the first charge has priority. The second mortgage may still be cheaper than an unsecured loan, as the second charge provides some collateral, this might make it attractive if a sudden expense needs to be covered." "Hi I'm the writer thanks for the read and the comment. With the statement you quoted, I'm trying to dispute the claim that ""people these days can't afford a house because they would have to pay their entire salary just to afford the mortgage,"" which I think is quite common in some circles. The data makes no statement as to whether home ownership is more affordable or not, but simply shows that those buying property are using around the same percentage of their income to pay for it, which the data clearly shows to be true.   https://fred.stlouisfed.org/series/RHORUSQ156N  As it turns out, home ownership levels have remained within ~5% of their 1980 levels based on percentage of the total population. I think there is an major classification flaw when comparing only sales because a great deal of people inherit property with no sale ever being made." Why would a lender for a down payment want proof of income for a house when a credit card issuer gave me more and doesn't care? The risk profile and rate of interest are different.  Could I use this argument as a basis that they have no reasoning to request proof of income, if another lender (credit card company) would give me more without proof of repayment? You could argue anything, but it does not mean the other company will agree with your argument. Should I borrow a home loan from a credit card company then? Or what's the catch here? You can. Check the rate of interest and penal fees; you would realize how much you will end up paying. Depending on the country, the difference could be in the region of 10-15%. "In the Netherlands its cheaper in some cases to have a mortgage then to own a house.   Example: If you own a house you pay more taxes (because you own something expensive you have to pay ""eigendoms belasting"" < owners tax). So if you instead of owning the house,  keep the mortgage low and only pay the mortgage interest, the interest will be much lower then the tax you would have to pay. The sweet spot (for lowest interest and not having to pay the owners tax) is different for any mortgage but by grandparents use this method and they pay a really small amount for a rather large house." "The difference between me and Uncle Sam is that Uncle Sam gets the lowest interest rates in the world.  If I could borrow money at 1.7% for 10 years you bet your ass I'd do it!    Also, the notion that ""Uncle Sam is running out of people to borrow from, and is having trouble paying those loans back (and the interest)"" is just false.  US treasuries are the most sought after debt in the world.  If anyone had any doubt uncle sam would pay them back, interest rates would be skyrocketing, not at historic lows.  After that quote I turned it off, about two minutes in.  This is just more FUD designed to get you to buy gold or whatever.  Ignore it."