6 ms·

Are fixed-rated mortgages really that common in US? Around here afaik pretty much all mortgages are variable-rate, generally EURIBOR or something close to it. O

• binarytox1n 4y ago
  Fixed rate is the standard in the US. If someone here gets an adjustable rate, I usually assume they are financially illiterate.
  • ct0 4y ago
    And extremely optimistic.
  • bluGill 4y ago
    I wouldn't say illiterate. If rates are going down they are a great choice as you will refinance in a couple years anyway. However you have to really know what rates (read the economy) will do so that just as they reach the bottom (you don't need to hit the exact bottom, just get close) to refinance to fixed rate. They are also good if you have reason to believe you won't live there for more than a couple years. (in general renting is better than buying if your time frame is less than 7-10 years, but local factors may force you to buy anyway). Since ARMs are lower rates they save you money in the short run. However they tend to adjust up after the terms and so can really hurt you.
    • eric-hu 4y ago
      One more specific example of someone taking a calculated short term risk: home flippers. They have had both good times and bad in the last 15 years. Those who financed with lower costs during hotter markets had better margins.
      • KerrAvon 4y ago
        House flipping should probably be banned, though. It's bad for the homeowners who buy the house because it's invariably low-quality contractors who do the work and they invariably don't do it to code. It's bad for the neighborhood because the residents aren't stable.
        • kortilla 4y ago
          This is a dumb over generalization. People that fix up homes are good for the neighborhood.
        • aperson_hello 4y ago
          I'm curious what the alternative is? Houses in bad condition are even worse for the neighborhood
    • DontchaKnowit 4y ago
      Ignorant here because I dont know how ARMs are actually structured as far as what the lender can and cant do, but the idea of signing a loan contract and having no garauntee of the upper bound of the interest rate is absolutely wild to me. Banks will fuck you at any opportunity they have, so habding then a loaded gun and thinking theyre not gonna raise rates without a reason is crazy to me.
      • svachalek 4y ago
        Even if there were no limitations in the contract, there's still a market. If your bank diverged too far you can just refinance. And if the whole market is high, inflation is probably crazy and you're watching the principal dwindle to insignificance anyway.
      • savanaly 4y ago
        The beauty of competition. The person lending you money always could fuck you over, but the greed of other banks would save you in that scenario. Which they know, so they don't fuck you over. Same reason grocery stores don't wait until you fill your cart up and then jack up the prices as soon as you reach the register.
        • Our_Benefactors 4y ago
          Oh, but they can do that now. I’ve been in grocery stores where they had ip-addressable e-ink screens for the price tags which updated regularly.
      • ericvsmith 4y ago
        Back in the 80s and 90s ARMs were very popular in the US because interest rates were high, and the expectation was that they wouldn't stay that way forever. The rate increases had a lifetime cap, so there was a knowable upper bound. Edit to add: also, if you knew you were going to sell (and confident you could actually sell) within a few years, the lower initial rate of an ARM made sense.
        • matwood 4y ago
    • KerrAvon 4y ago
      I would say close to illiterate. I don't know what mortgages are like in other countries, but in the US you want a fixed rate or you want to rent. An ARM can really fuck you up. > They are also good if you have reason to believe you won't live there for more than a couple years Generally speaking, it's better to rent in that case. You'll have more flexibility and substantially less risk.
    • kortilla 4y ago
      If you think you can predict the interest rates, you can make far more money in the financial market than what you can save with an ARM.
      • bluGill 4y ago
        You have to do a lot better at prediction in most markets. The other the potential for change gets priced in, while with mortgage you can get todays rates while everyone knows how they will change.
    • matwood 4y ago
      > If rates are going down they are a great choice as you will refinance in a couple years anyway. It's also great to put all my money on black if the roulette wheel is going to land on black. Mortgages are long term, making predicting future rates 3-5-10 years out very hard. > Since ARMs are lower rates they save you money in the short run. The low rates of the last 5ish years compressed the difference between fixed and variable that there was little reason to take on the variable risk. As rates go up, that calculation will likely change. > They are also good if you have reason to believe you won't live there for more than a couple years. You should rent then. The cost and friction of RE transactions are too high for someone not planning to be there for 2+ years.
  • senthil_rajasek 4y ago
    Between 2009 and 2021 ( low and decreasing interest rate regimes) ARM 3,5 or 7 year were a better choice to fixed rate mortgages. ARMs are not a bad choice if you know what you are doing. It is also a great choice if you are not planning to stay at a place for all your life.
    • InTheArena 4y ago
      But 2007/2008 drove a number of people w/ these mortgages into bankruptcy. It's a risk thing.
      • senthil_rajasek 4y ago
        The 2007 housing crisis was primarily a subprime mortgage crisis. ARMs are not the devil just as CDOs aren't the villain.
  • rfrey 4y ago
    Why? When I looked into it (about a decade ago), variable rates had paid less overall than fixed for every 10 year window over the previous 50 years. I always assumed people getting fixed rate were overleveraged and couldn't assume the rational risk of the variable.
  • abrookewood 4y ago
    Funny, cause I think the exact opposite. I've read numerous papers and in Australia at least, you are statistically better off on a variable rate something like 2/3 of the time. You pay a premium for the security of a stable interest rate.
    • irrational 4y ago
      My interest rate is fixed at 2.2%. It seems highly unlikely that interests rates are going to drop below 2% for a significant amount of time.
    • thfuran 4y ago
      You can also (probably) save money by never buying any kind of insurance, but insurance is a useful risk mitigation. Someone who got an ARM a few years ago and is hitting the variable rates around now probably sees their interest rate roughly double. They likely aren't much reassured by the fact that historically, most people's mortgages had better timing.
  • coolestguy 4y ago
    Banks set the fixed rate & they more than anyone else knows what will most likely happen to rates in the future because the banks are the ones in closed door meetings with reserve banks/government. Do you think they'd set a fixed rate where they lose?
  • hiAndrewQuinn 4y ago
    Yale economist James Choi certainly doesn't strike me as financially illiterate, yet in his paper "Popular Personal Financial Advice versus the Professors", he finds variable rate mortgages to be a pretty good deal. https://www.nber.org/papers/w30395 https://www.nber.org/papers/w30395
  • benjaminwootton 4y ago
    In the UK, a large percentage of mortgages are variable rate. And they almost all have the early repayment penalty.
    • elteto 4y ago
      Early repayment penalty? That’s fucked. For once, I’m happy to see the US leading in this regard.
  • lawn 4y ago
    Your statement makes me assume you're financially illiterate... A variable rate has historically been more beneficial than a fixed rate. A fixed rate should be seen as an insurance you pay a premium for. If the risk of it going up so much that you can't afford it, then it's absolutely a great idea to get a fixed rate, but otherwise you'll earn more with a variable rate.
    • astura 4y ago
      Depends on what the rate is. If it's historically low at the time your take out your mortgage you might consider locking in that rate. I certainly would not have been better off with a variable rate, for one example.
    • aperson_hello 4y ago
      Statistically, you're right - the variable rate is usually better. But that's also assuming that interest rates are completely random (which they're not) - a bit of market timing is wise to do here. And the spread compresses when rates are low, making the fixed more attractive then because the premium is lower. Variable also makes a lot more sense with shorter timelines (either to sale or to early payoff).
• ct0 4y ago
  I know of only 1 person who has an ARM, everyone else is fixed rate.
• piyh 4y ago
  They're the default choice. ARM is about 10% of originations
• dghlsakjg 4y ago
  Fixed rate 30 yr. Mortgages are the default in the US
  • afandian 4y ago
    Does that mean fixed rate for 30 years? That would be unthinkable in the UK. From what I’ve seen, even 10 years would be unconventional.
    • snarf21 4y ago
      That is correct. This is why home ownership is the main wealth building tool here.
    • chrismcb 4y ago
      Yes. It means a fixed rate for 30 years. Unless you refinance the only thing that changes is your property tax. 15 years is really the way to go, as it typically isn't that much more per month. But 30 is the standard.
      • sidewndr46 4y ago
        No clue where you are at, but my homeowner's insurance definitely goes up more often than once every 30 years.
        • ghaff 4y ago
          Well, there are a bunch of things. Insurance and all the other maintenance and upkeep costs associated with owning a home. But, still, in general locking in a mortgage means locking in costs for the most part even if it doesn't eliminate spending generally.
      • Rebelgecko 4y ago
        It might've been just because I got my mortgage at a weird time, but when I refi'd there wasn't really a benefit to going 15 year. The interest rate was basically the same, so it seemed pointless.
• Deadron 4y ago
  It depends. The come and go based on legislation and the current fixed interest rates. They were very popular for a bit but as the fixed rates kept dipping they seemed to mostly vanish. They seem to only really be popular when financial institutions can easily resell them as they tend to target the lower income brackets.
• hansvm 4y ago
  As a purchaser, you would often want fixed-rate. A variable rate is subject to the ups and the downs, but a fixed rate you can always refinance (at a cost, but one that's beaten out in the long-term by better average interest on a typical loan) to a lower fixed rate when available and ignore when rates climb. Since 30-yr loans are common, plans that play out on 5-10yr timescales are relevant. Given that banks are willing to offer them, you'd need an out-of-the-ordinary situation (selling soon, believing rates will continually decrease slowly, not being well educated, unique credit situation making rates favorable for one loan type and not another, ...) to choose a different option.
  • rockbruno 4y ago
    This is definitely country-dependant. In Sweden you can pay extra with no penalty if you're on a variable rate, so if you have the means, the best option financially speaking is to go with variable and pay it off as quickly as possible (or at least enough to make the raise in interest to be negligible).
    • matwood 4y ago
      Most mortgages in the US can also be paid off with no penalty - fixed or not. A purchaser should prefer fixed if they are available, and only use a variable rate loan for specific circumstances. The low rates of the last few years compressed the rate difference between fixed and variable, that it made almost zero sense to get a variable rate loan.
      • rockbruno 4y ago
        I see, that's the difference then. In Sweden the fixed ones penalize you for paying extra.
        • matwood 4y ago
          In the US some can have prepayment penalties, but it's not common. All the loans I've ever been presented (car, house, etc...) were simple interest loans. I would never sign one that was anything other than simple interest.
• inglor_cz 4y ago
  I don't think I could get a fixed-rate mortgage in Czechia at all. The max fixation period I regularly see on offer is 7 years.
  • foobarian 4y ago
    It's because the US government nationalized a couple of banks that guarantee the 30-year fixed loans. It's not a random accident.
• Marazan 4y ago
  Variable rate plus prepayment penalty is basically criminal and you wouldn't find that in the UK. You would have a variable rate with no repayment fee or a short fixed rate (max of 10 years) with a repayment fee.
• irrational 4y ago
  Thankfully fixed is the norm. My home interest rate is 2.2%. With the way interests rates have gone the past year, I’m thankful it is fixed.
• Gibbon1 4y ago
  Fixed rate mortgages were part of the New Deal. That part was a response the the abusive banking practices before the great depression. For instance a most loans were interest only. Collateral was subject to 100% seizure on default. The loan could be called in at any time. And the bank could demand payment in either cash or a fixed amount of gold.
• letmeinhere 4y ago
  Not just fixed but highly leveraged, repayable at any time, and with tax deductible interest payments. All courtesy of the federal government, but sufficiently submerged as to form an upper and middle class that believes they are rugged individualists. Serves as the vast majority of our government's intervention in housing, with very small sums for (a few) very low income people and basically nothing for anyone in between.
  • michaelcampbell 4y ago
    > , but sufficiently submerged as to form an upper and middle class that believes they are rugged individualists. This editorializing was totally unnecessary for the question that was asked.
• IAmGraydon 4y ago
  Around 93% of residential mortgages in the US are fixed rate.
• astura 4y ago
  Not only are they common, they are standard. The US federal government is highly involved in the mortgage market in the US through Fannie Mae and Freddie Mac. I don't think 30 year fixed rate mortgages would be something one could find in a "free" mortgage market.
• michaelcampbell 4y ago
  > Are fixed-rated mortgages really that common in US? Yes, for decades they were the standard. Prior to 2008, ARMs became more common, and now it's a mix but I'd reckon fixed rate in the US is still predominant.