3 ms·

What are 25-year mortgages with 5 year terms? Do you mean the interest rate is fixed for only five years? If so, people will not need to refinance as long as i

by MarkMc 10y ago

What are 25-year mortgages with 5 year terms? Do you mean the interest rate is fixed for only five years? If so, people will not need to refinance as long as interest rates stay low.

querulous 10y ago
the interest rate is fixed for 3-5 years usually, yes even if interest rates are flat (or go down, even) you can still be forced into foreclosure if your equity in the home drops below an acceptable threshold
refurb 10y ago
It means the mortgage is based on a 25 year repayment schedule, but the money is only lent for 5 years at a time. After the 5 years are up, you need to pay back all the remaining principle. That's usually done by taking out a new 5 year mortgage.
- CamperBob2 10y ago
  Wow, that's utterly terrifying.
  - refurb 10y ago
    It's how it's been done in Canada for the last century. Normally interest rates don't change that drastically and if they do go up it's due to inflation which is usually reflected in a salary increase. What would be really terrifying would be another period of stagflation (no growth, high inflation). You could see your salary stay the same, but your mortgage payments increase by 20-40% when you refinance.
    - CamperBob2 10y ago
      Can they deny an existing homeowner a mortgage? In the US, getting a mortgage is often a convoluted process that takes weeks of effort to put together and can fall apart at any time.
      - jdkenney 10y ago
        Yes, it is possible, but more often the homeowner switches lenders themselves, since they are now able to negotiate for a better rate from a competitor. The truly terrifying thing is that the banks have been adding clauses to the mortgages that on renewal if the market value drops below the outstanding balance, the homeowner is required to pay the difference in order to renew. This is scary because they will not have paid off much in the first 5 years, but the house price can certainly drop a lot in 5 years in a down market, and there would be very little hope for finding a new lender willing to offer a new mortgage for more than the market value of the house. Getting a mortgage in Canada is (in my experience) a very weird process for an agreement over such a large sum, but typically can happen within a week.
    - MarkMc 10y ago
      Wow, that's basically a 5-year loan. I'm surprised that Canadian home buyers accept such risk. I wonder why the mortgage market in Australia and UK is so different to Canada.
dragonwriter 10y ago
I think it means amortized over 25 years, balance due and payable in 5, meaning you make payments like it was a 25 year mortgage, but after 5 have to pay it off (often, as GP points out, by refinancing.)

by MarkMc 10y ago

What are 25-year mortgages with 5 year terms? Do you mean the interest rate is fixed for only five years? If so, people will not need to refinance as long as interest rates stay low.

querulous 10y ago

the interest rate is fixed for 3-5 years usually, yes even if interest rates are flat (or go down, even) you can still be forced into foreclosure if your equity in the home drops below an acceptable threshold

refurb 10y ago

It means the mortgage is based on a 25 year repayment schedule, but the money is only lent for 5 years at a time. After the 5 years are up, you need to pay back all the remaining principle. That's usually done by taking out a new 5 year mortgage.

CamperBob2 10y ago
Wow, that's utterly terrifying.
- refurb 10y ago
  It's how it's been done in Canada for the last century. Normally interest rates don't change that drastically and if they do go up it's due to inflation which is usually reflected in a salary increase. What would be really terrifying would be another period of stagflation (no growth, high inflation). You could see your salary stay the same, but your mortgage payments increase by 20-40% when you refinance.
  - CamperBob2 10y ago
    Can they deny an existing homeowner a mortgage? In the US, getting a mortgage is often a convoluted process that takes weeks of effort to put together and can fall apart at any time.
    - jdkenney 10y ago
      Yes, it is possible, but more often the homeowner switches lenders themselves, since they are now able to negotiate for a better rate from a competitor. The truly terrifying thing is that the banks have been adding clauses to the mortgages that on renewal if the market value drops below the outstanding balance, the homeowner is required to pay the difference in order to renew. This is scary because they will not have paid off much in the first 5 years, but the house price can certainly drop a lot in 5 years in a down market, and there would be very little hope for finding a new lender willing to offer a new mortgage for more than the market value of the house. Getting a mortgage in Canada is (in my experience) a very weird process for an agreement over such a large sum, but typically can happen within a week.
  - MarkMc 10y ago
    Wow, that's basically a 5-year loan. I'm surprised that Canadian home buyers accept such risk. I wonder why the mortgage market in Australia and UK is so different to Canada.

dragonwriter 10y ago

I think it means amortized over 25 years, balance due and payable in 5, meaning you make payments like it was a 25 year mortgage, but after 5 have to pay it off (often, as GP points out, by refinancing.)