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>This means you'll renew your mortgage roughly five times before it is repaid, at the prevailing rates at that time. This sounds a lot like ARMs aka balloon mo

>This means you'll renew your mortgage roughly five times before it is repaid, at the prevailing rates at that time. This sounds a lot like ARMs aka balloon mortgages. Mortgage brokers ramming these everyone's throats played a big role in the 2008 melt down.

a-priori 5y ago
I don't know enough about what a "balloon mortgage" is to comment on that, other than to say that the 2008 mortgage crisis was not as severe in Canada as it was in the United States. So, to the extent that mortgage terms were a factor in the crisis, and I don't know whether it was, I wouldn't say that this kind of mortgage was disproportionately worse.
- discardedrefuse 5y ago
  "Balloon mortgage" was just a nickname they gave to ARMs at the time. In the US, 30-year fixed had been the bedrock of home mortgages for decades. Most home buyers didn't really know what ARMs were and brokers bent over backwards to misrepresent them. Many brokers also stopped offering fixed rate loans because ARMs paid out WAY higher commissions. There were a lot of lambos in Hialeah those years. Lenders were equally complicit in this mess. They were approving borrowers for obscene amounts of money by calculating qualifying amounts using ONLY the initial ridiculously low interest rate of the ARM. Thus, purposefully not accounting for the inevitable rate hike. Most lenders also looked the other way when brokers were very obviously fudging loan applications to qualify borrowers for more money. When those balloons finally popped (2-5 years from loan inception), home owners saw their monthly payment rocket up to unsustainable levels. This is what kicked off the wave of foreclosures (and why you often hear idiots, even right here on HN, blame the home buyers for the entire housing bubble). Then there was the whole bundling of these ticking-time bomb mortgages into securities that got magically AAA rated and pushed into people's retirement funds. And also how banks insured these shit securities to protect themselves from what they knew was about to happen. But that's a whole 'nother story that goes beyond the mortgage aspect of it all. Sorry for the history lesson!

a-priori 5y ago

I don't know enough about what a "balloon mortgage" is to comment on that, other than to say that the 2008 mortgage crisis was not as severe in Canada as it was in the United States. So, to the extent that mortgage terms were a factor in the crisis, and I don't know whether it was, I wouldn't say that this kind of mortgage was disproportionately worse.

discardedrefuse 5y ago
"Balloon mortgage" was just a nickname they gave to ARMs at the time. In the US, 30-year fixed had been the bedrock of home mortgages for decades. Most home buyers didn't really know what ARMs were and brokers bent over backwards to misrepresent them. Many brokers also stopped offering fixed rate loans because ARMs paid out WAY higher commissions. There were a lot of lambos in Hialeah those years. Lenders were equally complicit in this mess. They were approving borrowers for obscene amounts of money by calculating qualifying amounts using ONLY the initial ridiculously low interest rate of the ARM. Thus, purposefully not accounting for the inevitable rate hike. Most lenders also looked the other way when brokers were very obviously fudging loan applications to qualify borrowers for more money. When those balloons finally popped (2-5 years from loan inception), home owners saw their monthly payment rocket up to unsustainable levels. This is what kicked off the wave of foreclosures (and why you often hear idiots, even right here on HN, blame the home buyers for the entire housing bubble). Then there was the whole bundling of these ticking-time bomb mortgages into securities that got magically AAA rated and pushed into people's retirement funds. And also how banks insured these shit securities to protect themselves from what they knew was about to happen. But that's a whole 'nother story that goes beyond the mortgage aspect of it all. Sorry for the history lesson!