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30 fixes only exist in the US thanks to government intervention in the mortgage market to underwrite that risk for the banks. In most western countries, fixed
by pja 5y ago
30 fixes only exist in the US thanks to government intervention in the mortgage market to underwrite that risk for the banks.
In most western countries, fixed mortgages do exist, but the bank has to go out and buy the relevant interest rate swap in the open market, so availability fluctuates & is biased towards short term fixes. Most people are either on a variable rate or are on a short term fix that expires in a couple of years.
I remember when interest rates hit 15% in the UK in the 80s. My parents did worry they were going to lose our house!
- s1artibartfast 5y agoI get that the US is exceptional. I just wonder how people deal with that downside.
- cmrdporcupine 5y agoIn the past (when high rates were a thing) by being more cautious about their purchases. Certainly that's how my wife and I have been, while everyone else has been partying and living potentially well beyond their means. Guess we're suckers.
- s1artibartfast 5y agoIn this context, what is beyond ones means? IS buying a house at a 5% rate when 10% would be too much beyond your means? In a place like California, that 5% change could be half of your salary. If the cautious approach is only buy a house if you can handle a 2-3X rate hike, then individuals would never own and perpetually rent from companies.
- cmrdporcupine 5y agoWell, in Canada the majority (68.55%) are homeowners, not renters, so no, that's not how it's working. Toronto and Vancouver housing markets are as bad as (or worse than) the Bay Area for housing prices, especially when you factor in people's incomes. In reality, higher rates or the risk of them puts downward pressure on housing prices. A huge component of the price of homes comes from the easy availability of the actual product: housing loans. Almost everyone out there just gets the biggest mortgage that the bank approves them for. They go to the bank and say "what will you give me" and then go look for prices around that cost. Or get in bidding wars up to that level. And the banks are so underwritten by government guarantees that they're willing to take big risks here. It just drives prices higher and higher. We never had the 2008 housing price crash that happened in the US, and things have just continued to climb. It's possible that we'll have a huge crash at some point, it's well overdue. But I've given up on waiting for that to happen.
- s1artibartfast 5y agoIts not that I don't believe you, I just don't know how people pay their mortgage when it doubles if you have a variable rate.
- pja 4y agoDoubling interest rates doesn’t double the cost of a repayment mortgage. If you’re buying on an interest-only mortgage then you’re very exposed to interest rate rises though.