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It's not only about being underwater on mortgages, but having your morgtage payment double (and maybe tripling soon...). Reddit is full of panicking homeowners

It's not only about being underwater on mortgages, but having your morgtage payment double (and maybe tripling soon...). Reddit is full of panicking homeowners who are starting to straggle with payments. This will have a wide effect on the whole economy because any discretionary spending will evaporate.

endtime 4y ago
Are adjustable rate mortgages common in Canada?
- visiblink 4y ago
  Canadian mortgages have separate amortization periods (say 20 or 25 years for example) and interest rate terms (generally 1-5 years, after which the rate has to be renegotiated -- and you have the option of transferring the mortgage to another lender at that time). You can also let your rate float with the market, which is called a variable rate mortgage.
  - kansface 4y ago
    Interesting. Do you know why mortgages in Canada are so different from the US? They seem much more risky on the buyer’s side.
    - Analemma_ 4y ago
      Nobody but the United States has long-term fixed rate mortgages: they're horrible for lenders because the lender has to assume all interest rate risk. The reason they exist in the US is because the government acts as a backstop due to pro-homeownership politics, but it causes a bunch of market distortions that are made invisible to American borrowers.
      - rvense 4y ago
        30 year fixed-rate is very much the norm here in Denmark. There was a period of experimentation leading up to 2007, but I think fixed rate is very popular. I'm certainly happy that's what we went for when we bought our first house two years ago.
        lupire 4y ago
        It's hard to call it a "norm" when it's so new that no one has yet seen one completed.
        rvense 4y ago
        It's been like this for at least 50 years, maybe more - the underlying system of credit associations goes back to the lat 1700's. The mortgage market was very tightly regulated to really only permit the 30-year fixed-rate mortgages until 2002.
      - synu 4y ago
        We have them in the Netherlands.
      - prottog 4y ago
        > a bunch of market distortions that are made invisible to American borrowers Anyone who has taken a five-minute look at the real estate market in any major US city can see those market distortions plain as day.
    - mikem170 4y ago
      > Do you know why mortgages in Canada are so different from the US? The U.S. has been heavily subsiding mortgages since the great Depression, through programs such as FHA. Banks would not be willing to loan people money at such low rates over 30 years unless the government and taxpayers backed the loan.
    - vkou 4y ago
      Because it's more profitable for the lenders, and Canada's government is happy to bend over backwards to make old-boys-club-businesses like banks and telecoms comfortable.
    - tel 4y ago
      The USG massively subsidizes home ownership. The burden is passed down to taxpayers, but also may cause a drag on the global economy due to lopsided interest rate hedging.
      - lupire 4y ago
        USG massively subsidizes home debtorship, driving prices up to benefit legacy landowners. It's not at all clear whether the policy actually helps ownership.
        tel 4y ago
        That's correct, and a fair refinement.
- mostly_harmless 4y ago
  supposedly about a 1/3 of mortgages are variable in Canada. But more importantly, fixed mortgages are almost all 5 year terms (or less). That is, every 5 years you have to renew your rate (even though the mortgage amount is for 25 years). That means every year, about 20% of homeowners are updating to the current fixed rate (assuming an random distribution of purchase date). Perhaps a big chunk renewed early in 2020, but by 2025/2026 all mortgaged homeowners will have a new higher rate.
sleepdreamy 4y ago
The allure of home ownership in America is the fixed mortgage rate among other things. (Rent goes up each year, without question). I purchased a home at the start of this mess with an 2.6%. Right now it's hovering around 6%. I would say I MASSIVELY lucked out. Does Canada not fix the rate? I am confused -
- xxpor 4y ago
  No, the US is the outlier with the 30 year fixed rates. Canada not only has variable rate mortgages, but instead of the rate just adjusting, they essentially have 5 year mortgages, with a balloon payment at the end. If you can't roll it over into a new load (say because your debt to income is now too high), you're screwed.
  - gambiting 4y ago
    Sounds the same as UK then.
  - sleepdreamy 4y ago
    Wow - this is mind boggling. Also..kind of scary? I guess any big financial decision is scary but I didn't know that was America exclusive. Do you know if European countries have fixed rates or does it go up ever 5 years or so
    - ddorian43 4y ago
      Europe is like Canada. Often there is 3 or 5 years of fixed, but then it's often euribor 12month + spread. Often in Albania it's euribor 12M + 3 or 4.

endtime 4y ago

Are adjustable rate mortgages common in Canada?

visiblink 4y ago
Canadian mortgages have separate amortization periods (say 20 or 25 years for example) and interest rate terms (generally 1-5 years, after which the rate has to be renegotiated -- and you have the option of transferring the mortgage to another lender at that time). You can also let your rate float with the market, which is called a variable rate mortgage.
- kansface 4y ago
  Interesting. Do you know why mortgages in Canada are so different from the US? They seem much more risky on the buyer’s side.
  - Analemma_ 4y ago
    Nobody but the United States has long-term fixed rate mortgages: they're horrible for lenders because the lender has to assume all interest rate risk. The reason they exist in the US is because the government acts as a backstop due to pro-homeownership politics, but it causes a bunch of market distortions that are made invisible to American borrowers.
    - rvense 4y ago
      30 year fixed-rate is very much the norm here in Denmark. There was a period of experimentation leading up to 2007, but I think fixed rate is very popular. I'm certainly happy that's what we went for when we bought our first house two years ago.
      - lupire 4y ago
        It's hard to call it a "norm" when it's so new that no one has yet seen one completed.
        rvense 4y ago
        It's been like this for at least 50 years, maybe more - the underlying system of credit associations goes back to the lat 1700's. The mortgage market was very tightly regulated to really only permit the 30-year fixed-rate mortgages until 2002.
    - synu 4y ago
      We have them in the Netherlands.
    - prottog 4y ago
      > a bunch of market distortions that are made invisible to American borrowers Anyone who has taken a five-minute look at the real estate market in any major US city can see those market distortions plain as day.
  - mikem170 4y ago
    > Do you know why mortgages in Canada are so different from the US? The U.S. has been heavily subsiding mortgages since the great Depression, through programs such as FHA. Banks would not be willing to loan people money at such low rates over 30 years unless the government and taxpayers backed the loan.
  - vkou 4y ago
    Because it's more profitable for the lenders, and Canada's government is happy to bend over backwards to make old-boys-club-businesses like banks and telecoms comfortable.
  - tel 4y ago
    The USG massively subsidizes home ownership. The burden is passed down to taxpayers, but also may cause a drag on the global economy due to lopsided interest rate hedging.
    - lupire 4y ago
      USG massively subsidizes home debtorship, driving prices up to benefit legacy landowners. It's not at all clear whether the policy actually helps ownership.
      - tel 4y ago
        That's correct, and a fair refinement.
mostly_harmless 4y ago
supposedly about a 1/3 of mortgages are variable in Canada. But more importantly, fixed mortgages are almost all 5 year terms (or less). That is, every 5 years you have to renew your rate (even though the mortgage amount is for 25 years). That means every year, about 20% of homeowners are updating to the current fixed rate (assuming an random distribution of purchase date). Perhaps a big chunk renewed early in 2020, but by 2025/2026 all mortgaged homeowners will have a new higher rate.

sleepdreamy 4y ago

The allure of home ownership in America is the fixed mortgage rate among other things. (Rent goes up each year, without question). I purchased a home at the start of this mess with an 2.6%. Right now it's hovering around 6%. I would say I MASSIVELY lucked out. Does Canada not fix the rate? I am confused -

xxpor 4y ago
No, the US is the outlier with the 30 year fixed rates. Canada not only has variable rate mortgages, but instead of the rate just adjusting, they essentially have 5 year mortgages, with a balloon payment at the end. If you can't roll it over into a new load (say because your debt to income is now too high), you're screwed.
- gambiting 4y ago
  Sounds the same as UK then.
- sleepdreamy 4y ago
  Wow - this is mind boggling. Also..kind of scary? I guess any big financial decision is scary but I didn't know that was America exclusive. Do you know if European countries have fixed rates or does it go up ever 5 years or so
  - ddorian43 4y ago
    Europe is like Canada. Often there is 3 or 5 years of fixed, but then it's often euribor 12month + spread. Often in Albania it's euribor 12M + 3 or 4.