5 ms·

But if you need to get a mortgage, then the cost of that might very well have gone up by more than the housing prices have dropped.

by dagw 4y ago

deleted 4y ago
[deleted]
strikelaserclaw 4y ago
yet you might be able to re finance someday.
onlyrealcuzzo 4y ago
Doesn't matter. You can refinance when interest rates inevitably go down. A 4-8% discount multiplied by 5:1 (or 33:1 leverage) is ENORMOUS. It dwarfs an extra 5-10% monthly expense for a year or two or three. Especially considering R/E capital gains are mostly tax free.
- dagw 4y ago
  Yea, I forgot that the US allows free refinancing of mortgages when interest rates drop. That completely changes the calculus.
  - dacohenii 4y ago
    It's not free; it usually costs a few thousand dollars, so there is a payback calculation to make.
    - refurb 4y ago
      Free in the sense you don't pay a penalty. In Canada, if you refinance before your mortgage term end it's typically to pay 3 months of interest as penalty or the difference between your new rate and the old rate until the term ends. It's pretty damn punitive.
      - pessimizer 4y ago
        What's the rationale behind that? That's really a penalty for early repayment - is it set by law, or is it just something that is part of a standard Canadian mortgage contract?
        dagw 4y ago
        Here in Sweden if I have a fixed rate mortgage and want to repay early or refinance at a lower interest rate, I have to pay a penalty which is essentially equal to what the bank is losing in out on in 'missed' interest payments.
        onlyrealcuzzo 4y ago
        30-year fixed rate mortgages should not exist. They only exist in the US and Denmark: https://www.thediff.co/p/the-30-year-mortgage-is-an-intrinsically-toxic-product-200c901746a?triedSigningIn=true https://www.thediff.co/p/the-30-year-mortgage-is-an-intrinsi... And they only exist because of A LOT of government intervention. If interest rates don't continue to only go down - I imagine you'll see them disappear in the US and Denmark. US & EU banks mostly make their mortgage profits from constantly refinancing at ever lower rates.
        refurb 4y ago
        You are right that they wouldn’t normally exist without government intervention. But banks don’t profit off the interest rate on mortgages. It’s mostly origination fees. Mortgages are sold off immediately. They don’t hold onto them.
        Marsymars 4y ago
        It’s just standard. The standard Canadian mortgage contract is for a 5-year term with a fixed rate. Variable rate mortgages have notably lower costs to end early. (Early repayment terms are typically something like “can optionally pay up to 15% extra per year without penalty.”)
  - jermaustin1 4y ago
    Not sure what you mean by free. But there are time time frames where you are barred from refinancing (not within 6 months of closing on a mortgage - including the refi, so you are in a timing the market kind of situation), and the fees (appraisal, closing costs, origination, points, etc.) that go along with refinancing are usually pretty steep.
  - cudgy 4y ago
    Refinancing is not free. There are still costs for any loan like appraisal, possibly an inspection, and recording fees, but some lenders will roll those costs into the loan or offer higher interest rates to offset their costs. Nonetheless, I’ll take the lower principal of a lower priced house than an over-priced house with a lower interest rate … lower taxes and possibility to refinance at lower rates.
- Finnucane 4y ago
  When we bought in 2009, the rate was 4.85%. Later we got it down to 3.5%--a difference of over $400/mo. At this rate we'll have it paid off completely 14 years early.
- halfmatthalfcat 4y ago
  When are rates going back to under 3%? That was a flash in the pan phenomena, I highly doubt that would ever happen again absent some other cataclysmic event. The current rates are more toward the contemporary average.
  - onlyrealcuzzo 4y ago
    > When are rates going back to under 3%? That was a flash in the pan phenomena, I highly doubt that would ever happen again absent some other cataclysmic event. This is what everyone said after the financial crisis. 3 years after rates moved up from 0% (~2018) - the 30-year mortgage rate hit an all-time low (~2021). I'm not sure how you can be so confident they're never going lower this time. And I'm completely lost how you can be confident they won't be lower than they are now within a couple of years...
    - halfmatthalfcat 4y ago
      You're completely lost, after looking at the last 50 years of rates, at the chances of it falling to 2021 lows? We're talking probabilities here and I'm confident the probability is very low.
      - onlyrealcuzzo 4y ago
        So you observed the last 50 years of rates, and you don't see a downward trend?! In every country in advanced world??
      - bkberry352 4y ago
        Very low probability? No way. They push the rates lower than ever before during each crisis, we just have to wait till the next one.
Finnucane 4y ago
Not necessarily. If the price goes down, the amount of mortgage you need to get also goes down. It becomes easier to save for a downpayment. A bigger downpayment means saving on possible expensive mortgage insurance.
- conductr 4y ago
  Prices aren’t dropping that much to offset a tripling (or more) in interest expense. Or we have a long way to go at least.
  - Finnucane 4y ago
    We were in a position to buy during the last crash, when there was a bit of a discount off the bubble. So in my experience, in the long run, paying less up front is better than paying more.
    - conductr 4y ago
      I’d agree but don’t think it’s the right comparison for this discussion. It’s more about how much prices have to come down from their recent highs to offset the recent uptick in interest expense. I bought my first home at end of the last recession (price at floor for my market) and maximized my leverage (little down) AND got low rates. So I did great and assuming you did the same it probably worked out the same for you. But the high rates now make the math a bit more complicated. And, I don’t know if I’d assume the same level of appreciation I did back then. At that time, the recession was a few years in and it felt like that bulls were awakening so I was very confident in my purchase. Right now, it’s early in the recession, we don’t even know how long/far prices will decline, and rates are pretty high and most assets feel inflated. So, I wouldn’t feel very confident about it right now. I’d actually recommend most people just do lowish down, hope for a refi opportunity in a couple years, but make sure you have some cash for repairs/maintenance/rainy days as well. In any case, how much does a home price have to come down to offset interest rates climbing? It’s a lot. Probably something like 20% (I can’t do the math rn)
      - 4y ago
deleted 4y ago
[deleted]

But if you need to get a mortgage, then the cost of that might very well have gone up by more than the housing prices have dropped.

by dagw 4y ago

But if you need to get a mortgage, then the cost of that might very well have gone up by more than the housing prices have dropped.

deleted 4y ago

[deleted]

strikelaserclaw 4y ago

yet you might be able to re finance someday.

onlyrealcuzzo 4y ago

Doesn't matter. You can refinance when interest rates inevitably go down. A 4-8% discount multiplied by 5:1 (or 33:1 leverage) is ENORMOUS. It dwarfs an extra 5-10% monthly expense for a year or two or three. Especially considering R/E capital gains are mostly tax free.

dagw 4y ago
Yea, I forgot that the US allows free refinancing of mortgages when interest rates drop. That completely changes the calculus.
- dacohenii 4y ago
  It's not free; it usually costs a few thousand dollars, so there is a payback calculation to make.
  - refurb 4y ago
    Free in the sense you don't pay a penalty. In Canada, if you refinance before your mortgage term end it's typically to pay 3 months of interest as penalty or the difference between your new rate and the old rate until the term ends. It's pretty damn punitive.
    - pessimizer 4y ago
      What's the rationale behind that? That's really a penalty for early repayment - is it set by law, or is it just something that is part of a standard Canadian mortgage contract?
      - dagw 4y ago
        Here in Sweden if I have a fixed rate mortgage and want to repay early or refinance at a lower interest rate, I have to pay a penalty which is essentially equal to what the bank is losing in out on in 'missed' interest payments.
      - onlyrealcuzzo 4y ago
        30-year fixed rate mortgages should not exist. They only exist in the US and Denmark: https://www.thediff.co/p/the-30-year-mortgage-is-an-intrinsically-toxic-product-200c901746a?triedSigningIn=true https://www.thediff.co/p/the-30-year-mortgage-is-an-intrinsi... And they only exist because of A LOT of government intervention. If interest rates don't continue to only go down - I imagine you'll see them disappear in the US and Denmark. US & EU banks mostly make their mortgage profits from constantly refinancing at ever lower rates.
        refurb 4y ago
        You are right that they wouldn’t normally exist without government intervention. But banks don’t profit off the interest rate on mortgages. It’s mostly origination fees. Mortgages are sold off immediately. They don’t hold onto them.
      - Marsymars 4y ago
        It’s just standard. The standard Canadian mortgage contract is for a 5-year term with a fixed rate. Variable rate mortgages have notably lower costs to end early. (Early repayment terms are typically something like “can optionally pay up to 15% extra per year without penalty.”)
- jermaustin1 4y ago
  Not sure what you mean by free. But there are time time frames where you are barred from refinancing (not within 6 months of closing on a mortgage - including the refi, so you are in a timing the market kind of situation), and the fees (appraisal, closing costs, origination, points, etc.) that go along with refinancing are usually pretty steep.
- cudgy 4y ago
  Refinancing is not free. There are still costs for any loan like appraisal, possibly an inspection, and recording fees, but some lenders will roll those costs into the loan or offer higher interest rates to offset their costs. Nonetheless, I’ll take the lower principal of a lower priced house than an over-priced house with a lower interest rate … lower taxes and possibility to refinance at lower rates.
Finnucane 4y ago
When we bought in 2009, the rate was 4.85%. Later we got it down to 3.5%--a difference of over $400/mo. At this rate we'll have it paid off completely 14 years early.
halfmatthalfcat 4y ago
When are rates going back to under 3%? That was a flash in the pan phenomena, I highly doubt that would ever happen again absent some other cataclysmic event. The current rates are more toward the contemporary average.
- onlyrealcuzzo 4y ago
  > When are rates going back to under 3%? That was a flash in the pan phenomena, I highly doubt that would ever happen again absent some other cataclysmic event. This is what everyone said after the financial crisis. 3 years after rates moved up from 0% (~2018) - the 30-year mortgage rate hit an all-time low (~2021). I'm not sure how you can be so confident they're never going lower this time. And I'm completely lost how you can be confident they won't be lower than they are now within a couple of years...
  - halfmatthalfcat 4y ago
    You're completely lost, after looking at the last 50 years of rates, at the chances of it falling to 2021 lows? We're talking probabilities here and I'm confident the probability is very low.
    - onlyrealcuzzo 4y ago
      So you observed the last 50 years of rates, and you don't see a downward trend?! In every country in advanced world??
    - bkberry352 4y ago
      Very low probability? No way. They push the rates lower than ever before during each crisis, we just have to wait till the next one.

Finnucane 4y ago

Not necessarily. If the price goes down, the amount of mortgage you need to get also goes down. It becomes easier to save for a downpayment. A bigger downpayment means saving on possible expensive mortgage insurance.

conductr 4y ago
Prices aren’t dropping that much to offset a tripling (or more) in interest expense. Or we have a long way to go at least.
- Finnucane 4y ago
  We were in a position to buy during the last crash, when there was a bit of a discount off the bubble. So in my experience, in the long run, paying less up front is better than paying more.
  - conductr 4y ago
    I’d agree but don’t think it’s the right comparison for this discussion. It’s more about how much prices have to come down from their recent highs to offset the recent uptick in interest expense. I bought my first home at end of the last recession (price at floor for my market) and maximized my leverage (little down) AND got low rates. So I did great and assuming you did the same it probably worked out the same for you. But the high rates now make the math a bit more complicated. And, I don’t know if I’d assume the same level of appreciation I did back then. At that time, the recession was a few years in and it felt like that bulls were awakening so I was very confident in my purchase. Right now, it’s early in the recession, we don’t even know how long/far prices will decline, and rates are pretty high and most assets feel inflated. So, I wouldn’t feel very confident about it right now. I’d actually recommend most people just do lowish down, hope for a refi opportunity in a couple years, but make sure you have some cash for repairs/maintenance/rainy days as well. In any case, how much does a home price have to come down to offset interest rates climbing? It’s a lot. Probably something like 20% (I can’t do the math rn)
    - 4y ago

deleted 4y ago

[deleted]