7 ms·

The 1973 oil crisis (and paying for the Vietnam War, etc) had kicked off a cycle of inflation that didn't really end until after the early 1980's when Paul Volc

• SilasX 7y ago
  Oh, man, he must have been kissing the ground to have locked in that mortgage rate before the inflation and high rates kicked in!
  • chiph 7y ago
    Well, it was 1966 and that's what you got back then. :) He would record every payment on the booklet you got with the mortgage that had the amortization schedule printed in it.
  • Redoubts 7y ago
    It’s amazing rates lock in for 30 years. Are banks still stuck in the 80s too?
    • lumost 7y ago
      Variable interest rates were a thing in the early-mid oughts. It didn't end well.
      • mruts 7y ago
        Variable rate mortgages still are a thing. And it's not like there's anything really wrong with them. You are getting a better rate (compared to the newly issued fixed rates), but also getting some rate exposure over the duration of your mortgage. This exposure could help you, or hurt you, but I would hardly call it a bad thing. The problem is that most people don't understand these things and are stupid, and decide to buy a house and sign all the paperwork without reading it.
        • toast0 7y ago
          > This exposure could help you, or hurt you, but I would hardly call it a bad thing. The problem is the amount it can help you and the amount it can hurt you are disproportionate; if the rates fall enough to significantly help you, you could likely have a similar reduction by refinancing a fixed rate mortgage. But, if rates go up, you can't refinance to get a better rate, and you may have trouble selling as you may have planned, because higher interest rates put downward pressure on prices. For me, it seemed like the risk was not worth the reward; especially given I was borrowing in 2009, and rates had significantly more room to go up than to go down. In the 1980s 20+% interest rate climate, I may have chosen differently.
          • caf 7y ago
            Can you really just refinance a fixed rate mortgage that's now priced at an above-market interest rate? Surely the bank has you on the hook to pay that higher interest rate for the remainder of your loan term, they're not going to accept an early termination without some kind of penalty. After all, they've presumably backed your loan with some kind of equally long-term security.
            • thoughtstheseus 7y ago
              Prepayment fees perhaps?
            • sharx 7y ago
              If your original lender were to refuse you could refinance with a different one. Your lender knows this and therefore will let you refinance to keep your business (I'm actually doing this now). You do have to pay loan original fees again though which can be 1-2% of the balance of the loan so you have to compute when it actually pays off for you and whether it's worth it.
            • toast0 7y ago
              You might have to pay a fee to close out the loan early, but mostly the fees are reasonable. If your loan was originated after 2014, prepayment penalties are very limited [1] My lender had a program where you paid a nominal amount (originally $500, but later $1000) and they'll adjust your rate to their then current rate. If you do a full refi, my understanding is that's going to cost in the neighborhood of $3000, although many lenders will roll that into the loan, or otherwise hide it. [1] https://www.nolo.com/legal-encyclopedia/when-are-prepayment-penalties-allowed-new-mortgages.html https://www.nolo.com/legal-encyclopedia/when-are-prepayment-...
      • nvarsj 7y ago
        Fixed rate mortgages are a uniquely US thing I think - I imagine made possible by government entities securing them. Rest of the world is predominantly on variable rate mortgages - why would a rational lending entity take on the risk of a fixed rate?
        • danmaz74 7y ago
          In Italy almost all mortgages used to be on fixed rates until 2000
        • tomp 7y ago
          AFAIK it's actually the other way around. Banks, hedge funds and other institutions regularly trade "swaps" - instruments that swap variable interest rate for some fixed interest rate - the variable rate is usually "FED rate" or some well-known benchmark, whereas the fixed rate is set to be such that the net present value is zero - so that you can establish such contract without any immediate exchange of money. If anything, it's a huge anomaly that this facility isn't routinely available to retail customers, and an indication of lack of competition within the banking sector in many countries.
          • nvarsj 7y ago
            The mortgage market is giant. I don't think there is enough liquidity to remove all the risk off of bank's books from private investors. This is where the government comes in I believe. Freddie Mac/Fannie Mae buy all the loans off of the banks. Many of these are later sold to investors who want to bet on rates - but I imagine Freddie/Fannie still has huge exposure to interest rate moves.
        • pintxo 7y ago
          Fixed rates are the default in Germany. You would have a hard time trying to find a bank offering a variable rate to a normal customer. They have them, but they are surely not standard and fortunately not offered aggressively. I am unaware of any such regulation, but there probably is one.
          • 7y ago
      • lostlogin 7y ago
        They are a thing in New Zealand and have been for a long time. Our rates are a lot higher than the US.
      • Erwin 7y ago
        Interesting how mortages vary so wildly between countries. Here in Denmark the variable loans are all below zero. You still pay something as the loan has a management fee on top of the interest, so you can end up paying approx 0.6% in interest in the variable loan that can change every 5 years. The mortage loan can only cover up to 80% of the value of the house, with rest being 5% cash and 15% a more normal, higher-interest bank loan. How much you can loan is based on a multiplier of your household income typically. The 30-year fixed loan is 2% effective interest. And you can also not pay any interest for up to 10 years.
    • profquail 7y ago
      Banks offer both fixed-rate (“locked in”) and floating-rate mortgages (where you pay the prime rate + some fixed number of basis points).
    • Agathos 7y ago
      The only reason anyone can get a 30-year fixed-rate is that the government makes it so, by guaranteeing and eventually taking over Fannie Mae and Freddy Mac.
  • amiga_500 7y ago
    Boomers often cite the 1970s inflation spike as a terrible time, but the wage inflation eroded their debt, leaving them with high disposable income and the ability to refuse to work if not sufficiently compensated. The establishment have not made the same mistake again. When you have people in perpetual debt you have them under perpetual control. Credit can be created at will, but if you accidentally let financial independence break out, it's not easy to put back in the bottle. You have to wait for the next generation.
    • buckminster 7y ago
      I sometimes wonder if the American healthcare system and the UK housing market aren't deliberately kept expensive for much the same reason.
      • amiga_500 7y ago
        In the UK there is a lot of rhetoric about "the free market". When prices looked like they were going to drop, the government stepped in with "help to buy". The free market rhetoric is just that. It's a complete and utter lie.
    • aeternus 7y ago
      It benefits those with lots of debt but really hurts those that have worked hard to build up savings, or are on fixed income.
• b_tterc_p 7y ago
  I’m curious what they said in the phone calls? I’m not sure what they could possibly do to sound compelling apart from perhaps just hoping your dad was aggressively financially illiterate?
  • onlyrealcuzzo 7y ago
    Hello, uh, Mr. Doopler, I see that your current rate is 3.5% on your house. Did you know that at Bank Super Cool we're offering rates as high as 29.7%, and as you know, bigger is always better. PLUS if you refinance today, we're giving away FREE POPTARTS! Whaddya say, Mr. Doopler?
    • user5994461 7y ago
      Not sure why you're getting downvoted. They absolutely do that. If you were in person, they would even show you a great chart with their returns and the normal returns so you can see how how much better than the average they are!
  • coldtea 7y ago
    Obviously in exchange they would shave off some part of it?
  • _ah 7y ago
    They probably offered to lower his payments. Sure, the mortgage that would be paid off in 5 years now has another 20 years of payments left, but hey lower monthly payments!
  • toast0 7y ago
    Lower your interest rate mortgage calls are very poorly targeted. The companies that do this get lists of people with mortgages, which is easy because mortgages need to be publicly recorded to be effective, and call all of those people without any attempt to narrow the field; or maybe they just call everyone they can. They usually call and offer "new lower rates" when the rates have gone down in the last few months, but they probably don't work very hard to estimate the original rate (it's not public record, but you could probably make a good guess based on the lender and the date it was recorded). I had a mortgage originated in 2009, and then rate adjusted down several times to something in the 3.x range -- and would get calls and mailers promising "historically low" rates of 4.x; which I always found very amusing.
• beefman 7y ago
  If a precipitous rise in oil prices caused inflation, why did Paul Volcker cure it, and not the equally-precipitous fall in oil prices that occurred simultaneously with his attempt? That is, second attempt -- his first attempt, when oil prices were still high, didn't work.
• deleted 7y ago
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