6 ms·

That is a horrifying idea... eliminate fixed rate interest mortgages and the banks can target and de-home people at will.

by zionic 5y ago

forgingahead 5y ago
To be fair, the fixed interest rate mortgage is uniquely American, and is not seen in most other countries of the world. It's a great deal if you can get it! But obviously someone has to backstop the other end of this deal, and in the US it's basically the government.
- Sanzig 5y ago
  We have fixed interest rate mortgages in Canada, but the fixed rate is only valid for a specific period (typically 5 years). After this, the mortgage needs to be either renewed for another term at then-current rates, or transferred to a new lender.
  - pc86 5y ago
    We have these in the US too, they're called adjustable-rate mortgages.
    - sgerenser 5y ago
      Yes, but hardly anyone uses them because fixed rate mortgages are so much better of a deal in most cases. The government owned guarantors (Fannie/Freddie mainly) are the main reason that 30 year mortgages can be offered at such low rates in the U.S.
      - pc86 5y ago
        My point was that the things they're calling fixed-rate mortgages are in fact not fixed-rate mortgages.
  - forgingahead 5y ago
    Sure, fixed term for a short period is normal everywhere. But a fixed term for the entire length of the mortgage, whereby mortgage terms are commonly 30 years long, are only seen in the US and Denmark. Here's some more detail on this: https://www.netinterest.co/p/financing-the-american-home https://www.netinterest.co/p/financing-the-american-home
    - irishsultan 5y ago
      > But a fixed term for the entire length of the mortgage, whereby mortgage terms are commonly 30 years long, are only seen in the US and Denmark. Strange, because I have a fixed term for the entire length of my mortgage and I'm not living in those countries. Admittedly it's for a length of time shorter than 30 years, but even at that timeframe it would be possible to get one. There is however one additional modifier in the statement of the article: "fully prepayable", that may not exist anywhere outside of Denmark and the USA (but still, your source doesn't really explain where it got it's list of countries that have it, so I have no way to know it's correctness).
    - jacquesm 5y ago
      You can add the Netherlands and many other European countries to that list.
- crummybowley 5y ago
  I have a mortgage that is fixed interest and not backed by the government in anyway... So I think you might be wrong on how the risk is calculated. I can't see how any new risk is added in a fixed rate. In fact I can't see how a non fixed rate would really be good for anybody, and would keep the risk fluctuating for all parties involved.
  - aabaker99 5y ago
    If you have a fixed rate mortgage, the bank bears an interest rate risk. If the interest rate goes up, the bank could be getting more money in interest, but they aren't. If you have an adjustable-rate mortgage, you bear the interest rate risk.
    - da_big_ghey 5y ago
      and for its trouble and for its more risk bank is getting a higher rate than variable. bank run numbers so it receive acceptable level of risk.
    - crummybowley 5y ago
      No, the bank has at risk the capital loaned, which they payed out. A risk is not a "loss" in a hypothetical amount of money that maybe could be had in the future given market conditions which are not predictable.
      - aabaker99 5y ago
        > A risk is not a "loss" in a hypothetical amount of money that maybe could be had in the future given market conditions which are not predictable. This is incorrect. It is very common for investors (yes, including commercial banks) to frame risk in the way I described. This link to investopedia will expound upon my admittedly short description of interest rate risk [1]. Another obvious risk in this context is prepayment risk [2]. Note that both of these risk models are not about whether or not the bank is losing the money used to pay for the home, but are about factors that could affect the return on investment. You can find even more examples of risk models exactly like this on investopedia. [1] https://www.investopedia.com/terms/i/interestraterisk.asp https://www.investopedia.com/terms/i/interestraterisk.asp [2] https://www.investopedia.com/terms/p/prepaymentrisk.asp https://www.investopedia.com/terms/p/prepaymentrisk.asp

That is a horrifying idea... eliminate fixed rate interest mortgages and the banks can target and de-home people at will.

by zionic 5y ago

That is a horrifying idea... eliminate fixed rate interest mortgages and the banks can target and de-home people at will.

forgingahead 5y ago

To be fair, the fixed interest rate mortgage is uniquely American, and is not seen in most other countries of the world. It's a great deal if you can get it! But obviously someone has to backstop the other end of this deal, and in the US it's basically the government.

Sanzig 5y ago
We have fixed interest rate mortgages in Canada, but the fixed rate is only valid for a specific period (typically 5 years). After this, the mortgage needs to be either renewed for another term at then-current rates, or transferred to a new lender.
- pc86 5y ago
  We have these in the US too, they're called adjustable-rate mortgages.
  - sgerenser 5y ago
    Yes, but hardly anyone uses them because fixed rate mortgages are so much better of a deal in most cases. The government owned guarantors (Fannie/Freddie mainly) are the main reason that 30 year mortgages can be offered at such low rates in the U.S.
    - pc86 5y ago
      My point was that the things they're calling fixed-rate mortgages are in fact not fixed-rate mortgages.
- forgingahead 5y ago
  Sure, fixed term for a short period is normal everywhere. But a fixed term for the entire length of the mortgage, whereby mortgage terms are commonly 30 years long, are only seen in the US and Denmark. Here's some more detail on this: https://www.netinterest.co/p/financing-the-american-home https://www.netinterest.co/p/financing-the-american-home
  - irishsultan 5y ago
    > But a fixed term for the entire length of the mortgage, whereby mortgage terms are commonly 30 years long, are only seen in the US and Denmark. Strange, because I have a fixed term for the entire length of my mortgage and I'm not living in those countries. Admittedly it's for a length of time shorter than 30 years, but even at that timeframe it would be possible to get one. There is however one additional modifier in the statement of the article: "fully prepayable", that may not exist anywhere outside of Denmark and the USA (but still, your source doesn't really explain where it got it's list of countries that have it, so I have no way to know it's correctness).
  - jacquesm 5y ago
    You can add the Netherlands and many other European countries to that list.
crummybowley 5y ago
I have a mortgage that is fixed interest and not backed by the government in anyway... So I think you might be wrong on how the risk is calculated. I can't see how any new risk is added in a fixed rate. In fact I can't see how a non fixed rate would really be good for anybody, and would keep the risk fluctuating for all parties involved.
- aabaker99 5y ago
  If you have a fixed rate mortgage, the bank bears an interest rate risk. If the interest rate goes up, the bank could be getting more money in interest, but they aren't. If you have an adjustable-rate mortgage, you bear the interest rate risk.
  - da_big_ghey 5y ago
    and for its trouble and for its more risk bank is getting a higher rate than variable. bank run numbers so it receive acceptable level of risk.
  - crummybowley 5y ago
    No, the bank has at risk the capital loaned, which they payed out. A risk is not a "loss" in a hypothetical amount of money that maybe could be had in the future given market conditions which are not predictable.
    - aabaker99 5y ago
      > A risk is not a "loss" in a hypothetical amount of money that maybe could be had in the future given market conditions which are not predictable. This is incorrect. It is very common for investors (yes, including commercial banks) to frame risk in the way I described. This link to investopedia will expound upon my admittedly short description of interest rate risk [1]. Another obvious risk in this context is prepayment risk [2]. Note that both of these risk models are not about whether or not the bank is losing the money used to pay for the home, but are about factors that could affect the return on investment. You can find even more examples of risk models exactly like this on investopedia. [1] https://www.investopedia.com/terms/i/interestraterisk.asp https://www.investopedia.com/terms/i/interestraterisk.asp [2] https://www.investopedia.com/terms/p/prepaymentrisk.asp https://www.investopedia.com/terms/p/prepaymentrisk.asp