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It’s because interest rates are so low. A combined income of $225 can easily afford a $1m home at todays rates.
by nemo44x 5y ago
It’s because interest rates are so low. A combined income of $225 can easily afford a $1m home at todays rates.
- deleted 5y ago[deleted]
- shell0x 5y agoI also heard the downpayment required is only 5%.
- humanlion87 5y agoThat is true for properties that are valued at less than 1mil. And you have to pay mortgage insurance. For properties that are >= 1mil, you have to put 20% down.
- antoniuschan99 5y agoand also for first time home buyers
- onlyrealcuzzo 5y agoCanada doesn't have a 30-year fixed rate mortgage, though. So anyone making that trade better be betting that interest rates never go up...
- nemo44x 5y agoAren’t the rates fixed? If not then it’s a fairly ridiculous trade to take on. If no one has a fixed rate then without massive inflation any kind of interest surge will decimate the country.
- thefringthing 5y agoThe standard mortgage in Canada has a five-year term, amortized over 25 years. You generally cannot lock in a low rate for 30 years the way you can in the United States.
- mortehu 5y agoIf that is the case, then banks in US are taking the same "ridiculous" trade by offering fixed rates to almost everyone, and will be decimated by any kind of interest surge. It's not clear to some countries stick almost exclusively to fixed rate mortgages, and others stick almost exclusively to variable rates, but the people in "variable rate countries" have saved a lot of money historically.
- nemo44x 5y agoBanks package the loans into bonds which are then sliced up and sold to investors. Banks aren’t really in the speculation business as much as the underwriting business when it comes to mortgages. Fixed rates are always a better option for the person borrowing the money as you can refinance if rates go lower, lowering your monthly payment. Variable rate loans are far more regulated for a reason.
- mortehu 5y agoThe fact that the borrower can renegotiate lower only increases the premium charged for fixed rate loans. It's not free money or free insurance.
- oblio 5y agoYeah, but I imagine you know that thing about limited upside but potentially boundless downside?
- deleted 5y ago[deleted]
- raverbashing 5y ago> Fixed rates are always a better option for the person borrowing the money Check how variable rates and fixed rates have compared over time Basically, the "fixed rate" very rarely was smaller than the floating rate. Banks know how to calculate the rate ceiling and you're rarely going to win by betting against it. (Why would they risk borrowing it at a smaller cost than the given interest rate at a given time?) Sure there's a risk of interest shock, that risk is not zero. You can mitigate it by a) not buying something overvalued and b) having a big enough downpayment
- gruez 5y ago>If no one has a fixed rate then without massive inflation any kind of interest surge will decimate the country. I'm sure the central bank would step in to prevent the roughly 60% of homeowners/voters from being negatively affected.
- marvin 5y agoWonder if we’ll have bailouts for the banks or homeowners if interest rates go up. I’m not confident the answer is no.
- onlyrealcuzzo 5y agoBanks don't need bailed out if interest rates go up. They have very little exposure to mortgages. They slice up the loans and sell them as MBSes to the Fed and pension funds. If interest rates go up ~1% - pension liabilities decrease ~12%: https://www.pentegra.com/wp-content/uploads/2016/12/The-Impact-of-Rising-Interest-Rates-on-Defined-Benefit-Plans-%E2%80%94-The-Return-to-the-Overfunded-Plan.pdf https://www.pentegra.com/wp-content/uploads/2016/12/The-Impa... This is not terrible for pension funds. The Fed doesn't need bailed out...
- oblio 5y ago> The Fed doesn't need bailed out... Well, there is sovereign default but if the US does that, then we'd better hold on tightly to our breeches, from Kamchatka to Patagonia.
- onlyrealcuzzo 5y agoThe Federal Reserve wouldn't default. It doesn't owe anyone money. It buys bonds (printing money out of thin air) at favorable interest rates from the US Government. The US Government defaulting wouldn't impact the Fed's ability to continue to buy infinite sums of assets. There's no reason that the US Government couldn't default and the Fed buy absurd amounts of treasuries until interest rates remain low or go even lower.
- nemo44x 5y agoI think a good amount of inflation would be required. That helps alleviate the debt while also keeping the price of the house stable. What you can’t have is millions of bag holders underwater with mortgages on homes valuations cut in half.
- robhunter 5y agoGenerally in Canada, rates are only fixed for a certain term - typically 5 years.
- xeromal 5y agoIs there a limit to a rate hike?
- drpgq 5y agoI lot of people have been making that bet and they haven't been wrong so far.
- deleted 5y ago[deleted]
- nemo44x 5y agoI mean to be fair they haven’t been wrong in about 40 years except for fluctuations. Although those can be devastating to those stretched thin. Honestly I’m of the opinion we won’t see any serious rise in rates. Too many mortgage holders and indebted governments would be broken. Just look at the last month. The Fed threatens a few hikes that would push a 10 year bond to 2.5-3% and the market crashes.
- oblio 5y agoYeah, but on the other hand, black swans. We're navigating into uncharted territory and it feels a bit like 1929. And this time we're much more interconnected. And the thing is, maybe it would be better to blow off some of that steam in small bursts than find our <<after>> that 2 days ago was the point of no return.