4 ms·

> I would need to spend 2/3 of my monthly income for 30 years But it is not 2/3 of your income for the entire 30 years. Even if it is 2/3rds of your income ri

by jjav 5y ago

> I would need to spend 2/3 of my monthly income for 30 years But it is not 2/3 of your income for the entire 30 years. Even if it is 2/3rds of your income right now, the mortgage payment only ever goes down due to the three factors of inflation, refinances and (hopefully) raises you get over the decades. Compare to rent which only ever goes up.

HPsquared 5y ago
Interest rates can rise, which would increase the mortgage. Also, buyer's income could fall at some point in the next 30 years.
- danuker 5y ago
  Do banks actually take any interest rate risk? In Romania, there are a few offering a fixed interest rate.
  - vishnugupta 5y ago
    In India the fixed rate is about 2-3% above the prevailing rate (I.e., 12-13% as opposed to 10%) so they kind of pass in that risk to the borrower. Also here, “fixed” means that the rate is subject to change at fixed intervals as opposed to whenever the central bank changes the prevailing interest rate.
- alert0 5y ago
  The majority of mortgages are 30 year fixed. The rates don't change and you would be insane to not get a fixed rate mortgage right now with rates at ~3%.
  - nmca 5y ago
    Where are you getting a 30yr fix from? London, 15yr fixes like 4.5% or something equally silly, 10yr also expensive, 5r common. 30, unheard of for retail mortgage?
    - iso1631 5y ago
      In America, lifetime fixed rates are normal. In the UK the norm seems to be 2 or 5 years. There are 10 years too, and 3 or 7, but I haven't see a 15 year fix. I'm looking at a new mortgage and trying to decide between a 2 year mortgage (in 2 years I'll have a lower LTV so better rates) and a 10 year (which is slightly more expensive in the short term - 5% extra or so - but will be far more expensive in the long term, unless interest rates go up). So it's up to me to hedge based on where I think interest rates will be. Might split the difference and go for 5 years.
      - gpderetta 5y ago
        Yes, I feel lucky to have secured a 5 year mortgage at a low interest rate in UK. In the meantime in Italy you can get extremely low 20-30 year fixed rate mortgages.
        iso1631 5y ago
        UK rates 65% LTV will give you a 1.95% for 10 years 90% LTV 3.99% for 10 years 60% LTV for 1.44% for 2 years 90% LTV 3.09% for 2 years 85% LTV 2.59% for 2 years Alas I no longer have my baserate + 0.25% 25 year interest only tracker mortgage Options for a 250k house with a 90% (225k) mortgage at 3.09% for 25 years Fixed for 2 years, you pay £1,077.54 a month. By year 2 you're down to £212,683, and assuming no crash in prices, but no gain either, you can remortgage to an 85% rate (for the sake of £200 of overpayments - or £8.33 a month) If rates don't increase in that time, you're then on a 23 year 85% mortgage, fixed for 2.59% for 2 years, your monthly payment drops to £1,022.69 By year 4 you're at £198,621 you're down to 80% LTV and can remorgage to 1.89% on a 21 deal for the next 2 years, your monthly payment drops to £962.16 By year 6 you're at £184,183 you're down to 75% LTV and can remorgage to 1.44% on a 19 deal for the next 2 years, your monthly payment drops to £927.94 No more steps so assume that lasts for 4 years Total costs over 10 years is £117,960, and you're left owing £149,532 Now instead go for the 3.99% 10 year one and you're paying 3.99%, which leave you owning £160,499 and costs £1,186 a month, so total cost of £142,320 So that 10 year fix costs 36k extra, including 24k in cash. If house prices go up over the next 10 years your LTV will drop even more quickly so you'll same more money with remortgaging - even with a £1k product fee every 2 years. So the reasons to fix for 10 years would be 1) You think interest rates are going to shoot up to the point that getting a 3.99% rate on a 2 year fix will be tricky even with a lower LTV 2) You think house prices will crash, meaning your LTV will increase, and you won't be able to get off the standard variable rate Given in the UK, house price collapse is the most likely think to cause a government to fall, I don' think the 10 year fix makes sense.
  - throw0101a 5y ago
    > The majority of mortgages are 30 year fixed. *in the US. US ≠ World. In other jurisdictions in may be different, and since the article is in a dot-ca, they're in Canada, so things are different. In Canada the amortization is 25-30 years, but most people don't get mortgages with a term that is greater than 5 years. You then renew at that point.
- jjav 5y ago
  > Interest rates can rise, which would increase the mortgage. Mortgages are nearly always fixed rate, so that can't happen. That's the beauty of a mortgage, it can only ever go down, never up. But you're right in that variable rate do mortgages exist, but it would be very foolish to ever take one. Don't do it. Always go fixed rate, you can always refinance down if the opportunity arises, or stay the course if not.
  - wiredfool 5y ago
    In the US, a 30 yr fixed is the "standard", and even that is not the overwhelming majority that it used to be, with ARM and other financial engineering. Also, The ARMs tend to be lower rates than fixed in the US. My experience holding mortgages over the last 20 years in the states, ARMs were a strictly better option and would have saved me a ton of money, even with Refis by paying down the principle faster. But, The last 20 years are unlikely to continue, as it's been a long term decreasing interest rate environment, and there's a limit to how long and far that can happen. Elsewhere, fixed rates are the exception. And oddly, fixed rates are cheaper in Ireland at least, but with the caveat that you're stuck with the mortgage for the time of the fixed term, unless you are willing to pay a penalty. Forex, I could have had a ~4.x%~ 3.7% adjustable, or a ~3.5%~ 2.9% fixed for 3 years. Amortizations being what they are, the ~3.5%~ 2.9% rate pays down much faster. (edit -- just checked the actual current rates, which are probably closer to accurate than my just post coffee memory)
  - HPsquared 5y ago
    The fixed rate thing makes a big difference. I'm based in the UK, where most banks only offer fixed rate up to about 5 or 10 years. Interesting that it seems to vary by country.
    - karatinversion 5y ago
      Long term fixed rates are a major public policy objective in the US; they are much less common where that is not the case.
  - auxym 5y ago
    The article is about Canada, which has 5 years maximum mortgage term. After 5 years, you need to renew your mortgage at whatever interest rates are currently available.
onion2k 5y ago
A good rule of thumb for mortgages right now is "Can I still afford this if interest rates go up by 5%?" That would (approximately) double the monthly cost for me...

by jjav 5y ago

HPsquared 5y ago

Interest rates can rise, which would increase the mortgage. Also, buyer's income could fall at some point in the next 30 years.

danuker 5y ago
Do banks actually take any interest rate risk? In Romania, there are a few offering a fixed interest rate.
- vishnugupta 5y ago
  In India the fixed rate is about 2-3% above the prevailing rate (I.e., 12-13% as opposed to 10%) so they kind of pass in that risk to the borrower. Also here, “fixed” means that the rate is subject to change at fixed intervals as opposed to whenever the central bank changes the prevailing interest rate.
alert0 5y ago
The majority of mortgages are 30 year fixed. The rates don't change and you would be insane to not get a fixed rate mortgage right now with rates at ~3%.
- nmca 5y ago
  Where are you getting a 30yr fix from? London, 15yr fixes like 4.5% or something equally silly, 10yr also expensive, 5r common. 30, unheard of for retail mortgage?
  - iso1631 5y ago
    In America, lifetime fixed rates are normal. In the UK the norm seems to be 2 or 5 years. There are 10 years too, and 3 or 7, but I haven't see a 15 year fix. I'm looking at a new mortgage and trying to decide between a 2 year mortgage (in 2 years I'll have a lower LTV so better rates) and a 10 year (which is slightly more expensive in the short term - 5% extra or so - but will be far more expensive in the long term, unless interest rates go up). So it's up to me to hedge based on where I think interest rates will be. Might split the difference and go for 5 years.
    - gpderetta 5y ago
      Yes, I feel lucky to have secured a 5 year mortgage at a low interest rate in UK. In the meantime in Italy you can get extremely low 20-30 year fixed rate mortgages.
      - iso1631 5y ago
        UK rates 65% LTV will give you a 1.95% for 10 years 90% LTV 3.99% for 10 years 60% LTV for 1.44% for 2 years 90% LTV 3.09% for 2 years 85% LTV 2.59% for 2 years Alas I no longer have my baserate + 0.25% 25 year interest only tracker mortgage Options for a 250k house with a 90% (225k) mortgage at 3.09% for 25 years Fixed for 2 years, you pay £1,077.54 a month. By year 2 you're down to £212,683, and assuming no crash in prices, but no gain either, you can remortgage to an 85% rate (for the sake of £200 of overpayments - or £8.33 a month) If rates don't increase in that time, you're then on a 23 year 85% mortgage, fixed for 2.59% for 2 years, your monthly payment drops to £1,022.69 By year 4 you're at £198,621 you're down to 80% LTV and can remorgage to 1.89% on a 21 deal for the next 2 years, your monthly payment drops to £962.16 By year 6 you're at £184,183 you're down to 75% LTV and can remorgage to 1.44% on a 19 deal for the next 2 years, your monthly payment drops to £927.94 No more steps so assume that lasts for 4 years Total costs over 10 years is £117,960, and you're left owing £149,532 Now instead go for the 3.99% 10 year one and you're paying 3.99%, which leave you owning £160,499 and costs £1,186 a month, so total cost of £142,320 So that 10 year fix costs 36k extra, including 24k in cash. If house prices go up over the next 10 years your LTV will drop even more quickly so you'll same more money with remortgaging - even with a £1k product fee every 2 years. So the reasons to fix for 10 years would be 1) You think interest rates are going to shoot up to the point that getting a 3.99% rate on a 2 year fix will be tricky even with a lower LTV 2) You think house prices will crash, meaning your LTV will increase, and you won't be able to get off the standard variable rate Given in the UK, house price collapse is the most likely think to cause a government to fall, I don' think the 10 year fix makes sense.
- throw0101a 5y ago
  > The majority of mortgages are 30 year fixed. *in the US. US ≠ World. In other jurisdictions in may be different, and since the article is in a dot-ca, they're in Canada, so things are different. In Canada the amortization is 25-30 years, but most people don't get mortgages with a term that is greater than 5 years. You then renew at that point.
jjav 5y ago
> Interest rates can rise, which would increase the mortgage. Mortgages are nearly always fixed rate, so that can't happen. That's the beauty of a mortgage, it can only ever go down, never up. But you're right in that variable rate do mortgages exist, but it would be very foolish to ever take one. Don't do it. Always go fixed rate, you can always refinance down if the opportunity arises, or stay the course if not.
- wiredfool 5y ago
  In the US, a 30 yr fixed is the "standard", and even that is not the overwhelming majority that it used to be, with ARM and other financial engineering. Also, The ARMs tend to be lower rates than fixed in the US. My experience holding mortgages over the last 20 years in the states, ARMs were a strictly better option and would have saved me a ton of money, even with Refis by paying down the principle faster. But, The last 20 years are unlikely to continue, as it's been a long term decreasing interest rate environment, and there's a limit to how long and far that can happen. Elsewhere, fixed rates are the exception. And oddly, fixed rates are cheaper in Ireland at least, but with the caveat that you're stuck with the mortgage for the time of the fixed term, unless you are willing to pay a penalty. Forex, I could have had a ~4.x%~ 3.7% adjustable, or a ~3.5%~ 2.9% fixed for 3 years. Amortizations being what they are, the ~3.5%~ 2.9% rate pays down much faster. (edit -- just checked the actual current rates, which are probably closer to accurate than my just post coffee memory)
- HPsquared 5y ago
  The fixed rate thing makes a big difference. I'm based in the UK, where most banks only offer fixed rate up to about 5 or 10 years. Interesting that it seems to vary by country.
  - karatinversion 5y ago
    Long term fixed rates are a major public policy objective in the US; they are much less common where that is not the case.
- auxym 5y ago
  The article is about Canada, which has 5 years maximum mortgage term. After 5 years, you need to renew your mortgage at whatever interest rates are currently available.

onion2k 5y ago

A good rule of thumb for mortgages right now is "Can I still afford this if interest rates go up by 5%?" That would (approximately) double the monthly cost for me...