Here’s how modern mortgages actually work

Back in the day, the middle class worked good-paying union jobs, borrowed a reasonable amount of money (typically less than 3X annual single-earner income) from local bankers who risked their own real capital.

Not anymore. Now:

• You and a partner try your best to find a job (or two, or three, or start a business or a side hustle), work hard, and save within a menace economy that is preying on your labor, devaluating your money, and trying to automate+eliminate your job in real-time.
• You then pay tax on that money. Income tax, sales tax, property tax, excise tax, gift tax, tolls, tariffs, capital gains, inheritance tax, all sorts of tax, while the elites who control the government pay as little as 0.10% and their corporations pay zero by offshoring your stolen tax money, giving them a huge advantage over your company at all times.
• If you’re one of America’s 115 million renters, you then fork over a massive portion of that after-tax income to one of the nation’s 23 million rent-seeking landlords, passive speculators who contribute zero real value while flaying a profit off the backs of productive workers simply because they have the economic advantage.
• If you have anything left at the end of the month, you put it in a down payment savings account and watch inflation eat 10+% of it each year. All the while, the real estate markets continue to rise. Even if you’re doing great and saving $1,000–$3,000 per month, you’re still falling behind. (In Canada right now, the average house price is going up by $16,000 per month.)

But somehow you finally amass enough for the tiniest of down payments on a house that costs 10–30X your household’s annual income. More than likely, it’s because Grandma just died and left you an inheritance.

Or your parents and in-laws both chipped in.

And you’re planning to houseshare with a renter.

And probably start a meth lab in the basement.

You go to the bank

An overpaid banker tells you what they think you can afford.

And by “afford” I mean, what’s the most amount of debt they believe you can safely pay back to them with interest.

The banker hands you the mortgage document. It will commit you to pay them a wildly overinflated sum for a pile of rapidly degrading bricks and sticks, and legally bind you to pay them back with interest over the next 25–40 years. You won’t get to decide the future interest rates, but if you can’t afford just 3–6 consecutive payments in your decades-long repayment window — because interest rates rise or your job gets automated or there’s a recession and house prices crash — the banker gets to take away your house, ruin your credit, keep a huge chunk of your equity if not the down payment, and make you start all over again as a renter.

You take the plunge and sign the papers.

You hand over your ridiculously hard-earned, after-tax, real-money down payment.

The banker swivels in their chair, types some numbers on a computer screen, and POOF, they create credit — fake money — out of thin air.

Welcome to the insane fractional-reserve banking system.

(If someone deposits $10 in a bank, the bank can loan out $9, then book that loan as an asset, which allows them to loan out eight more dollars, book that loan as an asset, loan out $7, $6, $5, $4, $3, $2, $1, $0.10, $0.01, etc. So long as they abide by some incredibly weak reserve limits which they’re always trying to repeal, they essentially get to play Midas with your financial future. It’s called the money-multiplier effect, and it’s the reason you and 100+ million Americans can’t afford to buy a house. The end result? Almost all new money is created as debt.)

That can’t be right, can it?

Surely bankers shouldn’t be able to type numbers into a screen and print money out of thin air. Wouldn’t that wildly inflate house prices and put the squeeze on billions of people who have to work hard to pay back fake loans (plus interest) with the real value of their real labor? Wouldn’t printing money make currency worth less every year until $100 trillion doesn’t buy a loaf of bread?

Of course, once you’ve purchased a house, you don’t really care, so long as house prices continue to rise indefinitely. But is that really a good thing? And doesn’t that just make the real estate market a giant Ponzi scheme, always relying on the next generation to shoulder more mortgage debt than the previous?

I’m sure you see the problem with this cycle

On my first day of real estate college, our professor made a joke: “Mortgage comes from two Latin root words: Mort meaning death, and gage meaning grip.”

Now I understand what he meant.

Mortgage debt → repaid with real money + interest → requires more debt and more printed money → so debt and prices metastasize higher and higher while purchasing power continually weakens and sinks.

Because bankers don’t care about extra zeroes.

They get paid in real money when times are good, and when times are bad, they get their (s)elected politicians to bail them out with your tax money.

That’s how the modern death-grip actually works.

To be clear, I’m not saying no one should get a mortgage. I’m just saying that modern mortgages are the biggest ripoff in the world — and that banks shouldn’t be able to profit wildly from debt-trapping humanity.

And I’m not saying that your mortgage is a ripoff, either — heck, when interest rates are less than inflation, the economy is literally giving you money. But where is it coming from? From the pockets of the poorest of the poor, by eroding their purchasing power. And yours. In the end, the entire mortgage industry greatly impoverishes all of us. It’s the biggest ripoff for society.