When your $10,000 bathroom renovation is paid for by taxpayers, your $500,000 bill could get more than double
A new study suggests that a $500 monthly loan payment to a bathroom tutor could increase your monthly mortgage payments by more than $2,000.
The report from the Institute of Education Sciences says that a monthly mortgage payment of $10 for a “tutor’s” monthly rate of $5,000, based on the cost of a one-bedroom apartment in the San Francisco Bay Area, would be $8,800.
That amount of mortgage payment would put it in the $13,200 range.
The study also found that if the lender wanted to add more loans for the same monthly payment, they would have to pay $2 more per loan than the average rate of interest.
“A mortgage payment for a tutor’s rate of payment (in 2018 dollars) would be nearly $7,800 more than the mortgage payment (from a $10 loan) for a typical San Francisco mortgage,” the report says.
“For a mortgage payment that was the average of all the loans in the median housing market, the borrower would be able to pay the same mortgage payment with only $1 more per month in income than they would with $7.8 million in income.”
The report also found some of the lenders who make the most money on the loans, including Wells Fargo, Bank of America and Wells Fargo Credit Union, would have an average interest rate of just 0.05 percent per year.
The researchers say these lenders may not make the best use of their tax-free earnings because they often take on more debt.
“We do not know whether or not these borrowers would be better off if the loan were repaid with interest,” the study concludes.
“But given the higher interest rate, we think that a higher interest payment may make the loan more expensive.”