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I felt the same way until I learned that in much of the world, super long (eg 30 year) fixed rate (no penalty for early payment) mortgages just aren't available

I felt the same way until I learned that in much of the world, super long (eg 30 year) fixed rate (no penalty for early payment) mortgages just aren't available This is apparently a weird mostly unique to the USA thing, probably driven by complex subsidies. And that's why owning a home in the USA is such a good deal-- because it's the only way to get a 30 year fixed early-repayable mortgage, which, especially at the rates that were available for the last 15 years or so, is such an insanely good deal it's pretty much free money. If you really think about it, why would any rational bank take this bet? If rates go up, you have an unfairly low rate and they can't do anything about it. If rates go down, they still lose because you can just repay early through a refinance. And 30 years is a long time to guarantee a rate. The only reason a bank would offer such a crazy bargain is subsidies.

rufus_foreman 4y ago
>> This is apparently a weird mostly unique to the USA thing, probably driven by complex subsidies Before the 1930's, 5 year fixed-rate interest-only loans with a 50% down payment were typical in the US. At the end of 5 years the borrower would either have to pay off the remainder of the mortgage or negotiate a new loan at a new rate. Of course this caused a crisis during the Great Depression. During the 1930's, the Home Owners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and the Federal National Mortgage Association (FNMA) were created to regulate and insure mortgages. Instead of 5 years, 15 years was common at first, then 20, then 30. Instead of being interest only, loans were amortized to pay off principal, instead of a 50% down payment, 20% or even 10% was common. During the 1970's the interest rate mismatch (short term interest rates which banks used for financing rose, while their 30 year interest rates on loans were fixed) led Congress to allow FNMA and other entities to buy mortgages from lenders to get those loans off their books - that was the creation of the secondary mortgage market. Loans were still all fixed rate though, variable rate wasn't allowed in the US until 1982 (the Garn-St. Germain Depository Institutions Act). By the 2000's, you had variable rate mortgages, interest only loans were back, and banks could originate and then sell them into the secondary market, so they could make money on the origination (or if not that, the servicing) of the loan, while getting rid of the default risk (that was left to the US taxpayer under the guise of the supposedly private "government sponsored entities", the GSE). Of course this caused a crisis during the Great Recession.

rufus_foreman 4y ago

>> This is apparently a weird mostly unique to the USA thing, probably driven by complex subsidies Before the 1930's, 5 year fixed-rate interest-only loans with a 50% down payment were typical in the US. At the end of 5 years the borrower would either have to pay off the remainder of the mortgage or negotiate a new loan at a new rate. Of course this caused a crisis during the Great Depression. During the 1930's, the Home Owners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and the Federal National Mortgage Association (FNMA) were created to regulate and insure mortgages. Instead of 5 years, 15 years was common at first, then 20, then 30. Instead of being interest only, loans were amortized to pay off principal, instead of a 50% down payment, 20% or even 10% was common. During the 1970's the interest rate mismatch (short term interest rates which banks used for financing rose, while their 30 year interest rates on loans were fixed) led Congress to allow FNMA and other entities to buy mortgages from lenders to get those loans off their books - that was the creation of the secondary mortgage market. Loans were still all fixed rate though, variable rate wasn't allowed in the US until 1982 (the Garn-St. Germain Depository Institutions Act). By the 2000's, you had variable rate mortgages, interest only loans were back, and banks could originate and then sell them into the secondary market, so they could make money on the origination (or if not that, the servicing) of the loan, while getting rid of the default risk (that was left to the US taxpayer under the guise of the supposedly private "government sponsored entities", the GSE). Of course this caused a crisis during the Great Recession.