Mortgage

Anyone would be interested in mortgage?
I make an example:

You own 8192 sqm of land and you need some money.
A Bank can give you a loan of 17.5k L$ for a duration of 3-months. As security you have to transfer your land to the bank - however you keep full control of it. During the mortgage loan - you pays lower tiers than usual. Let's say 37 USD for 8192 sqm instead of 40 USD.

The loan's payback is split into 3 monthly payment of each 7125 L$ (plus tier fee of 37 USD/month).

Request for feedback

why not just wait and buy the 17.5 k rather than pay the banker over 100$ US ?

you just pay the bank like 3k L$ of interests...

even at a discount rate (which I personally wouldn't take, I'd require the whole tier), thats 3 months of 37$ us. Thats 111$

Lets see the current lindex on that...thats 30,774 L$

Plus what you're paying him bakc in interest

Plus the original loan.

Now again.. WHY NOT JUST BUY THE LINDENS?

If someone else owns the land, you can't have full control of it. To have full control, you either have to own it or be an officer in the group that owns it.

That 37$ is him saving you 3$ a month for land tier fees that you would pay either way. Not saying this is a great deal or anything (it's not really) but I can see some people taking him up on the offer assuming that they trust he won't run off with their land after they pay for it plus interest. The scam fear is why this idea will fail I think.

This has been tried before. The problem is trust. A online enviroment does nothing to instill trust. I always have believed in, buy no more than you can afford. If you cant afford it dont buy it.

You have to consider there are no true needs in SL. There are plenty of wants but no needs.

Also, there are no contracts in SL. So this wont work.

Exactly. JUST BUY THE LINDENS IF YOU HAVE THAT MUCH TIER.

Yeah. If you're paying that much tier, you probably don't need someone to lend it to you, and if you do, it's probably not prudent to commit yourself to that much tier.

I have never had the joy of using a pawn shop, but isn't this the way they work?

Give me your stuff, I keep it (in this case you get to use it?), and if you want it back you have to pay me more than I bought it for.

Please read my post carefully before posting. Thank you.

Loan in USD: 61.44 USD
Paying Mortgage Tier: -111 USD
Not paying Linden Tier: +120 USD
Pay back loan in USD: 75.02 USD
= bank interests of 13.58 USD

Why not buy lindens? Free cashflow optimization. Imagine a real estate broker.
He got thousands of square meters lying around. He could take up a mortgage to buy more land. If someone buys the mortgaged land, he automatically pays his debt back before maturity.

This would allow financial leverage.

High Cashflow = Higher Revenues = Higher Profit

Exactly.

Lee and I have been debating banking in Neualtenburg. Here's my proposal:

Mortgage by demise on zoned residential land.

1)Neualtenburg registered bank meets with owner and buyer
2)Buyer & Bank sign and notarize (Bota Bene) promissory note, each retains a copy
3)Bank collects first payment and/or downpayment from buyer
4)Bank buys land from owner
5)Bank gives full group permission (but not ownership) of land to buyer until mortage is fully paid off. (Bank assumes *ALL* tier payments until this occurs)

-Buyer is protected by note which contains binding conflict resolution at his choice of the Neualtenburg commercial court or Nota Bene conflict resolution. If bank is found at fault, bank must either pay or dissolve with escrow held by Neualtenburg to pay creditor. There will be a notarized document at the bank that guarantees the escrow with the "Full Faith and Trust of the Neualtenburg Governement".
-Bank may foreclose per the terms of the mortgage due to late/non-payment.
-Possibility exists that (with bank's permission), buyer can sell the mortagage to another avatar. This is what makes this so much better than rent-to-own.

Mortgages might be 5% per week (fixed rate) for 4, 8 or 12 weeks.

-This is much different than a "trust me situation". You can trust me, but if not, trust your choice of court, and as a last resort funds are covered by Gov't backed escrow. There are severe financial penalties for either party, (forfeiture of land) for disobeying the law or being found at fault.

Thus contracts have teeth and are enforceable.

Comments?

Thank you pelanor
However I imagine the interests rates would be more around 6% per month.

Yes perhaps. Given the SL tier cost vs. purchase price differences it's a bit steeper than RL. Did you come up with 6%/month with those figures in mind? I just pulled the old 3/5/3 off the cuff.

The thing is, the people who seriously deal in real estate operate on low margins, high volume. Flipping it fast is more profitable, otherwise the tier will seriously erode profits. Any increase in the cost of purchasing the land they will have to pass on to the buyer, consequently they probably won't sell as quickly, increasing interest payments and tier payments. I don't know that cashflow would be much of an issue for them, long as that land keeps ticking over.

The average (not quite risk-free) return on invest is around 40-50% p.a. in SL.
Mortgage may vary upon credit rating - up to 6% should be realistic.
Ginko interests are around 165% (1.0014^360-1)

Low margins for SL perhaps

Did you forget a line?

Loan in USD: 61.44 USD
Paying Mortgage Tier: -111 USD
Not paying Linden Tier: +120 USD
Pay back loan in USD: 75.02 USD
= bank interests of 13.58 USD

Total cost to you = 186.02

Total cost to you keeping land and buying Lindens = 183.25

Compare..

186.02 / 183.25 =1.01501% per 90 days -> 6% yearly USD loan
Now try to get a 6% p.a. USD loan

This isn't about a interest rate. You save money by waiting and buying it yourself.

Much like in the real world, people will take the luxury of being able to afford something right now by getting a form of loan instead of saving up the money to buy it. Yes, people save money by waiting and buying it themselves, but many also pay interest rates on houses, cars, credit cards, ect.

I think Lee's idea has promise. There are trust issues, but as was mentioned if the land is still owned by the mortgager and the "bank" can reclaim the land due to nonpayment, I'm not seeing immediately how this would fail or any flaws in the system... Sure, you could ignore your contract, "vanish" and not log in and get an alt, but you would lose any payments made and the land would be reclaimed.

The bulk of the real-world mortgage process is eliminated : you don't need to underwrite or determine creditworthiness or trust - you just need the bank to say "If your payments lapse beyond x months, we will foreclose."

If something like this has been tried already and has failed, why?

then may others waste their money, don't mind the ones patient about it

I think there were a few failures due to the following:

1) Lack of market confidence (trust) due to a lack of enforcement structure. Neualtenburg now has the infrastructure to make this possible.

2) Leg work. It does take some effort to notarize and collect payments for a fairly small margin. Remeber, the bulk cost of owning land is tier, so short term mortgages are required. Many early banks were not willing to do this work. As a result, they did not have a source of income to cover interest in their popular savings accounts resulting in bank collapse.

Neualtenberg is taking steps to overcome these shortcomings and become a center for finance and banking. Modelled in some ways after the Swiss, we plan to focus on stability, confidence, privacy and liquidity. Even at the expense of early profits, we want to offer rock solid banking for the first time in SL.

Jonas: Yes, people always have the option not to buy services. Most North Americans, however, use mortgage instruments to buy their homes. It gives you equity as you pay, and that in and of itself makes it better than renting. I realize being homeless in SL is not a true hardship, but not having access to land does make it difficult to prosper and earn.

My point is more along the fact.. you can buy most things in SL for the price of a 6pack of mikes hard lemonade (black cherry is my fave) .. so theres really no point in mortgages uness you -dont- want to put money in. And if you're unable to pay a few bucks for lindex after dishing out 40/mo for tier..you probably should have that much tier