How much of my home loan is coming from a bank, how much it goes back?
"Judging from your comments, you seem to be confused about the way banking works.  Banks can only lend out money that they actually have: whether from deposits or investors or loans taken from other banks/government entities.  The rules on how this works varies from country to country, but the principle is always the same.  There is no magic money. Let's imagine a closed system.  There's only one town, and that town only has one bank.  There are 100 people total in town, and each has $10,000.  Everyone deposits all of their money in the bank. The bank now has $1,000,000 in total deposits.  You take a loan for $100,000 and buy a house.  The bank now has $900,000.  You make your payments of $965 per month: $833 of interest and $132 toward principal.  In this ideal world, the bank has no costs associated with doing business.  After one month, the bank has $1,000,000 in deposits, $900,965 in cash on hand, $99,868 in loans, and $833 in profit (from interest). Now here's the confusing part.  You bought a house from someone.  That person also lives in town.  He takes the $100,000 you gave him and... deposits it in the bank.  The bank now has $1,100,000 in deposits, $1,000,965 in cash, $99,868 in loans, and $833 in profit. Assume 10 more people buy houses at $100,000 each, taking loans for that whole amount (for the same terms you did).  Assume those sellers then deposit the money back in the bank.  The bank now has $2,100,000 in deposits, $1,000,965 in cash, $1,099,868 in loans, and $833 in profit.  The bank is taking in $10,615 per month ($965 x 11) in loan payments, making profit of $9,163 ($833 x 11) per month from interest. This process of loans and deposits and payments can go on forever without any outside influence.  This is the primary way money is created.  It's like printing money without the paper. Of course, we're not in a closed system.  Banks are limited in endlessly creating money, primarily by two things: Reserve Requirements are set by government agencies.  They might say banks can lend until their cash on hand (or liquid equivalent) is, at minimum, 35% of total deposits.  So a bank with $1,000,000 in deposits would have to keep $350,000 in cash at any given time. Capital Requirements work largely the same way.  It's more the bank saying, ""What happens if a bunch of people want their deposits back?""  They plan a reasonable amount of cash to have on hand for that scenario." When you get a loan (car, home, student) the lending company (bank) give the (auto dealer, previous home owner, school) money. You as the borrow promise to pay this money back with interest.  So in your case the 100,000 you borrow requires a payment for principal and interest of ~965 per month. After 240 payments you will have paid the bank ~231,605.  So who got the ~131,000 in interest. The bank did. It was used to pay interest to the people who made deposits into the bank. It was also used to pay the expenses of the bank: salaries, retirement, rent, electricity, computers, etc. If the bank is a company with investors they may have to pay dividends to them to.  Of course not all loans are successfully paid back, so some of the payment goes to cover the loans that are in default. In many cases loans are also refinanced, or the house is sold long before the 20-30 year term is up. In these cases the amount of interest received for that loan is much less than anticipated, but the good news is that it can be loaned out again. "Ditto mhoran_psprep.  I'm not quite sure what you're asking. Where does the money come from? When someone starts a bank, they normally get together a bunch of investors -- perhaps people they know personally, perhaps they sell stock -- to raise initial capital. But most of the money in the bank comes from depositors. Fundamentally, what a bank does is take money from depositors and loan it to borrowers. (Banks also borrow money from other banks and from the government.) They charge the borrowers interest on the loan, and they pay depositors interest on their deposits. The difference between those two interest rates is where the bank gets their profit. Where does the money go when you pay it back? As mhoran_psprep said, some of it goes to pay interest to the depositors; some of it goes to pay the bank's expenses like employee salaries, cost of the building, etc; and some of it goes as profit to the owners or stockholders of the bank. If you're thinking, ""Wow, I'm paying back a whole lot more than I borrowed"", well, yes. But remember you're borrowing that money for 20 or 30 years. The bank isn't making very much money on the loan each year that you have it -- these days something like 4 or 5% in the U.S., I don't know what the going rates are in other countries."
"TARP was ~$475 billion of loans to institutions.  Loans that are to be paid back, with interest (albeit very low interest).  A significant percentage of the TARP loans have been (or will be) paid back.  So, the final price tag of the TARP was only a few $billion (pretty low considering the scale of the program). There is ~$10 trillion in mortgage debt outstanding.  That's a much higher price tag than TARP.  Secondly, paying off the mortgages = no repayment to the government as there was with TARP.  The initial price tag of your plan would be ~$10 trillion, instead of a few $billion. Furthermore how does a government with >$15 trillion in debt already come up with an extra ~$10 trillion to pay off people's mortgages?  Should the government go deeper into debt?  Print more money and trigger inflation? (Note:  Some people like to talk about a ""secret bailout"" by the Fed, implying that the true cost of TARP was much higher than claimed by the government.  The ""secret bailout"" was a series of short-term low/no interest loans to banks.  Because they were loans, which were paid back, my point still stands.)  Some other issues to consider: Remember that the principal balance of your mortgage is only a small portion of your payments to the bank.  Over 30 years, you pay a lot of $$$ in interest to the bank (that's how banks make a profit).  Banks are expecting that revenue, and it is factored into their financial projections.  If those revenue streams suddenly disappeared, I expect it would majorly screw the up the financial industry. Many people bought houses during the real estate boom, when housing prices were inflated far beyond the ""real"" value of the house.  Is it right to overpay for these houses?  This rewards the banks for accepting the inflated value during the appraisal process.  (Loan modification forces banks to accept the ""real"" value of the house.) The financial crisis was triggered by people buying houses they could not afford.  Should they be rewarded with a free house for making poor financial decisions?" "As far as I can recall, savings and chequing accounts exist due to regulations on the banking industry that put were into effect after the depression to prevent a ""run"" on the bank.   A chequing account is a ""demand"" account, meaning you can go and demand your money, and they have to pay immediately, by means of a withdrawal or a cheque.  Banks used to get out of hand and loan out pretty much all the money they had on deposit, and of course those people with loans just put the money they borrowed into another chequing account and the bank loaned that out to someone else.  The money that people believed they had access to multiplied indefinitely.  However, when everyone goes to take that money out at the same time, you have a run on the bank.  Therefore, government regulations stipulate a % that the bank must have on-hand.  The typical number is 5%.  That effectively limits the money multiplier to 19 times. Savings accounts get around this restriction by putting limits on how much and how quickly you can withdraw the amounts.  They pay you more interest because the money in a savings account is worth more to them, because it's not subject to those restrictions. Some chequing accounts pay interest, but you have to maintain a minimum balance.  Some savings accounts allow you to write cheques, but I assume the withdrawal limitations probably still apply. There's also something to do with deposit insurance (as in, the chequing accounts are covered by government deposit insurance, but savings accounts are not).  I'm not 100% certain of that though." I have gotten a letter of credit from my credit union stating the maximum amount I can finance. Of course I don't show  the dealer the letter until after we have finalized the deal. I Then return in 3 business days with a cashiers check for the purchase price.  In one case since the letter was for an amount greater then the purchase price I was able drive the car off the lot without having to make a deposit. In another case they insisted on a $100 deposit before I drove the car off the lot. I have also had them insist on me applying for their in-house loan, which was cancelled when I returned with the cashiers check.  The procedure was similar regardless If I was getting a loan from the credit union, or paying for the car without the use of a loan. The letter didn't say how much was loan, and how much was my money.  Unless you know the exact amount, including all taxes and fees,in advance you can't get a check in advance. If you are using a loan the bank/credit Union will want the car title in their name. For a $350 monthly payment, she is currently paying $200 monthly in interest. You say that no bank will refinance her, but that is not true, I'm sure many banks are happy to refinance her to the value of the car. She should start that process. You'll find that your suggestion to pay $5000 down on the current loan is pretty similar to what she would need to bring to a bank to refinance (maybe as much as $7000 to refinance). After that she would be paying a much lower amount in interest, and she could still retire the loan a year or two (but she would be paying even less in interest). The advantage to borrowing from her emergency fund is that she retires the loan 14 months earlier. The problem is that you are prioritizing the least amount paid, and she is prioritizing an emergency fund. Emergency funds are also very important. You might have better success if you prioritize paying back the emergency fund in your plan. If she puts $7000 down to refinance, assume a 3 year loan at 4.5% with a $150 monthly payment. Instead of paying down the remaining $5000 quickly what if she put the extra $200/month toward paying back her emergency fund? It would take the same 3 years to fully pay it back without impacting the rest of her budget at all. If she has extra room in her budget, she could pay back that emergency fund even faster. Many of us who prioritize minimizing interest paid and maximizing interest earned already have a robust emergency fund. Your girlfriend isn't wrong to value that. Unexpected emergencies can cause much more interest to be paid if there is no way to deal with them. (That's how paycheck and title lenders capture their customers.) Talk to her about what emergencies she might need the money for, and make a plan to replenish the fund, and you're much more likely to have her buy in. Banks want to be paid back, and if you don't, then want to be able to sell your property for enough money to cover what you didn't pay back. Your credit rating will determine the interest rate you pay, and this affects how much you can borrow because a higher interest rate means that you can borrow less on the same terms than you could with a lower interest rate. Paying 50% down will bring your payment way down, of course, and will improve everything about your loan (debt to income ratio, debt to equity) but you'll likely still be charged the higher interest rate based on your credit rating. This, of course, is contingent on the property's value appraising properly. Using the facts in your comment: I use the pmt function in excel and the goal seek tool to determine an original balance of ~$24,241.33 Taking into account the statement in the questions that you have paid $6,072.26 in principal gives an estimated current balance of  which almost exactly matches your current balance statement of $18,168.56 a difference of 51 cents. Is it possible that during the time you were in college the accumulated interest caused the balance to grow from 20,800 to 24,241? This could happen if the loans were unsubsidized. "It's legal. That's what a home equity loan is, for example. More generally, what you're talking about is a ""second mortgage"". It has no effect on the primary mortgage that you've already made to your bank; they're still secured, and if you get foreclosed, they get paid, and only if there's something left over does the second mortgage holder get anything. That's why second mortgages are more risky than first mortgages, and why you might have trouble finding someone willing to do it." "The first loan looks like it did not have its interest subsidized while you were in school, so interest was accruing eventhough you didn't have to start making payments on it yet. With the $73 payment you made, the bank is allocating the funds in a pre-determined split that is in their best interest - NOT yours! While you do need to pay them down (and eventually off), at the current rate it will take ~169 months (with no more interest accruing) to do so. Most likely, with interest continuing to accrue, you're looking more in the neighborhood of 17 years, rather than 14 (these are back-of-the-envelope numbers). The payoff balance listed is the current principle plus interest that will accrue before the next processing date - so it is usually a little higher than the ""actual"" balance, because the interest is accruing daily (albeit in very small percentages (1/365 of the loan's percentage))."