You have basically got it; all your points are right, but look at it from the point of view of the depositors. Pretend you've got a $100,000 savings account and you're living off the interest (this is an unrealistic example but bear with me). If that rate of interest is 5%, then you're living off $5k/year. If the bank hands you back 5% of your money ($5,000), then in order to maintain your income, then you've got to find somewhere to invest that money at 5%. If interest rates have fallen during the meantime, so that new deposits are being taken at lower interest rates, you're in trouble.
Obviously, there will be some people who are prepared to take this risk and inconvenience in return for a slightly higher deposit rate. But in order to finance an entire mortgage bank like this, I suspect it would be expensive. I suspect that mortgages like this have been designed (Doug will know) but I think they weren't cheap. best, dd ^^^^ CB: Thanks for the response, dd. Let me try to follow what you say. The depositors are lenders to the bank ? They lend at a certain rate of interest ? Wouldn't it be true that if a greater proportion is attributed to principle of the monthly payment to the bank from the mortgagor, and a greater proportion of the banks' payments to the depositors is proportioned to principle over interest, then the depositors would be paid off faster and the term that interest would be paid out would be shorter and the total amount of interest due the depositors would be less ? In other words, isn't the same thing true of the depositors in relation to the bank , as the bank in relation to the depositor ?
