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Aren’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 su

Aren’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 ago
The 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 ago
If 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 ago
  Banks 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 ago
    The 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 ago
      Yeah, 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
    - qwytw 5y ago
      > Basically, the "fixed rate" very rarely was smaller than the floating rate. Well that's obviously expected. But by taking an fixed rate loan you're basically betting that the rate will increase in the future. Of course there's a risk that the interest rates will stay close to zero for the next 30 years like in Japan.
      - onlyrealcuzzo 5y ago
        You can get a new mortgage at a lower rate if interest rates go down... You're allowed to repay.
        raverbashing 5y ago
        Not "can" but "might be able to". For example, new builds might get you a lower interest rate, but if you go to refinance, then it's not a new build anymore. (Though in one way this is usually true - a lower principal will give you a lower interest rate usually) A lot of banks do charge you a penalty for repaying before the (fixed interest) term in case of fixed rate mortgages.
        nemo44x 5y ago
        Not in the USA. Any mortgage allows repayment without penalty. Banks actually want it that way as their business is underwriting loans and the fees associated with them.
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 ago
Wonder 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 ago
  Banks 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 ago
      The 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 ago
  I 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 ago
Generally in Canada, rates are only fixed for a certain term - typically 5 years.

Aren’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 ago

The 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 ago

If 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 ago
Banks 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 ago
  The 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 ago
    Yeah, 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
  - qwytw 5y ago
    > Basically, the "fixed rate" very rarely was smaller than the floating rate. Well that's obviously expected. But by taking an fixed rate loan you're basically betting that the rate will increase in the future. Of course there's a risk that the interest rates will stay close to zero for the next 30 years like in Japan.
    - onlyrealcuzzo 5y ago
      You can get a new mortgage at a lower rate if interest rates go down... You're allowed to repay.
      - raverbashing 5y ago
        Not "can" but "might be able to". For example, new builds might get you a lower interest rate, but if you go to refinance, then it's not a new build anymore. (Though in one way this is usually true - a lower principal will give you a lower interest rate usually) A lot of banks do charge you a penalty for repaying before the (fixed interest) term in case of fixed rate mortgages.
        nemo44x 5y ago
        Not in the USA. Any mortgage allows repayment without penalty. Banks actually want it that way as their business is underwriting loans and the fees associated with them.

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 ago

Wonder 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 ago
Banks 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 ago
    The 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 ago
I 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 ago

Generally in Canada, rates are only fixed for a certain term - typically 5 years.