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Not being from US, are most mortgages there fixed for their lifetimes or tied to fluctuating interest rates?

brandur 11y ago
Many are fixed for the entire duration of the mortgage's length (e.g. 25 years). You can find variable rates as well though. Being from Canada, I couldn't believe that this was possible when I first came down here because it seems to defy belief that any bank would take on the risk to extend a loan at such low-interest over that kind of time frame. It turns out that it's possible because the banks aren't taking any risk; instead it's all outsourced to US taxpayers ;)
- gozur88 11y ago
  That's very recent, though. We had thirty year mortgages long before the government started holding most of the paper. Banks have been selling loans for ages - when I bought my first house in the '90s the bank which originated the loan sold it to a life insurance company four days after escrow closed. After a few years that insurance company sold it to someone else. Life insurance is a good fit for mortgages. Insurance companies need a safe investment to pay out when people die, and usually the payout isn't inflation adjusted. Besides, if you have to invest money for the long term but can't (by statute or temperament) handle much risk, what are you going to invest in? Twenty year T-Bills are at 2.30%.
  - JumpCrisscross 11y ago
    > Twenty year T-Bills are at 2.30% FYI, T-bills have maturities of one year or less, T-notes two to ten years, and T-bonds 10 to 30 years. The term "Treasuries" helpfully covers all three.
  - distances 11y ago
    Selling the loans forward sounds a bit weird system. In Finland it's usually the other way around -- customers may take their loans with them to another bank. This happens every now and then when competing banks offer better margins on the loans, or if customer isn't happy with the bank's service.
deleted 11y ago
[deleted]
NamTaf 11y ago
Yes, which blows my mind too since APRs (as the US calls them) are standard in my experience here in Australia except that our banks tie the interest rate to the reserve rate which is revised monthly, not yearly. Fixing an interest rate is something you do for a span of 3-5 years, not the life of the loan. The US does a lot of things strangely, this is but one of them :)

Many are fixed for the entire duration of the mortgage's length (e.g. 25 years). You can find variable rates as well though. Being from Canada, I couldn't believe that this was possible when I first came down here because it seems to defy belief that any bank would take on the risk to extend a loan at such low-interest over that kind of time frame. It turns out that it's possible because the banks aren't taking any risk; instead it's all outsourced to US taxpayers ;)

gozur88 11y ago
That's very recent, though. We had thirty year mortgages long before the government started holding most of the paper. Banks have been selling loans for ages - when I bought my first house in the '90s the bank which originated the loan sold it to a life insurance company four days after escrow closed. After a few years that insurance company sold it to someone else. Life insurance is a good fit for mortgages. Insurance companies need a safe investment to pay out when people die, and usually the payout isn't inflation adjusted. Besides, if you have to invest money for the long term but can't (by statute or temperament) handle much risk, what are you going to invest in? Twenty year T-Bills are at 2.30%.
- JumpCrisscross 11y ago
  > Twenty year T-Bills are at 2.30% FYI, T-bills have maturities of one year or less, T-notes two to ten years, and T-bonds 10 to 30 years. The term "Treasuries" helpfully covers all three.
- distances 11y ago
  Selling the loans forward sounds a bit weird system. In Finland it's usually the other way around -- customers may take their loans with them to another bank. This happens every now and then when competing banks offer better margins on the loans, or if customer isn't happy with the bank's service.

deleted 11y ago

[deleted]

NamTaf 11y ago

Yes, which blows my mind too since APRs (as the US calls them) are standard in my experience here in Australia except that our banks tie the interest rate to the reserve rate which is revised monthly, not yearly. Fixing an interest rate is something you do for a span of 3-5 years, not the life of the loan. The US does a lot of things strangely, this is but one of them :)