4 ms·

For fixed rate, you'll get hit when you renew at the end of the term (typically 5y). Say you've got a 5 year fixed mortgage, at 3.49%. You buy a new home, taki

For fixed rate, you'll get hit when you renew at the end of the term (typically 5y). Say you've got a 5 year fixed mortgage, at 3.49%. You buy a new home, taking a $500k mortgage at 25y amortization. That's $2494/mo. At the end of the mortgage, you'll have $431,321 remaining on the loan. Renewing, if you find the fixed-rate amount is up two points to 5.49%, your 20 remaining years now costs you $2950/mo. If you're taking a mortgage right at the edge of your expense threshold, that 20% jump in monthly payments can hurt. The alternative is another 25y amortization for $2630/mo (and hey, inflation means you should be clear to $2730/mo to match your first mortgage) but that's just prolonging the life of the loan.

nwatson 8y ago
That's not a "fixed-rate" mortgage (at least in the U.S.), because fixed-rate mortgages set a fixed interest rate until the entire mortgage principal is paid down to $0. It seems like you're describing a https://en.wikipedia.org/wiki/Balloon_payment_mortgage https://en.wikipedia.org/wiki/Balloon_payment_mortgage, where you pay a fixed (or perhaps variable?) rate for a few years, but then need to make a huge balloon payment on that mortgage at the end of the term (usually done by arranging a separate mortgage).
- refurb 8y ago
  I think people are getting confused. Fixed rate means the interest rate doesn't change over the term of the loan. Compare this to variable or floating rates that can change. The difference for the US is that the fixed rates are for a 30 year term. Countries like Canada and Australia have 10 year terms as a max, with most people electing for something shorter as the rate goes down. In the US your rate might never change. In other countries it changes when you refinance at the end of the term.
Judson 8y ago
I'm sure this is US-centric, but the standard fixed rate products for primary-residence home loans here are 30yr and 15yr.
gascan 8y ago
Guys, don't downvote him. Many parts of the world do it like that- your 30yr mortgage is really a series of 5yr balloon amortized for a 30 year period. They don't have the option of a true 30yr fixed.
- refurb 8y ago
  Correct. And I know for at least Canada there are circumstances where you can be denied a renewal if you don't meet income requirements. Let's say you refinance from 2% to 6% and your mortgage payment exceed loan to income ratios, you might have to sell your home.

nwatson 8y ago

That's not a "fixed-rate" mortgage (at least in the U.S.), because fixed-rate mortgages set a fixed interest rate until the entire mortgage principal is paid down to $0. It seems like you're describing a https://en.wikipedia.org/wiki/Balloon_payment_mortgage https://en.wikipedia.org/wiki/Balloon_payment_mortgage, where you pay a fixed (or perhaps variable?) rate for a few years, but then need to make a huge balloon payment on that mortgage at the end of the term (usually done by arranging a separate mortgage).

refurb 8y ago
I think people are getting confused. Fixed rate means the interest rate doesn't change over the term of the loan. Compare this to variable or floating rates that can change. The difference for the US is that the fixed rates are for a 30 year term. Countries like Canada and Australia have 10 year terms as a max, with most people electing for something shorter as the rate goes down. In the US your rate might never change. In other countries it changes when you refinance at the end of the term.

Judson 8y ago

I'm sure this is US-centric, but the standard fixed rate products for primary-residence home loans here are 30yr and 15yr.

gascan 8y ago

Guys, don't downvote him. Many parts of the world do it like that- your 30yr mortgage is really a series of 5yr balloon amortized for a 30 year period. They don't have the option of a true 30yr fixed.

refurb 8y ago
Correct. And I know for at least Canada there are circumstances where you can be denied a renewal if you don't meet income requirements. Let's say you refinance from 2% to 6% and your mortgage payment exceed loan to income ratios, you might have to sell your home.