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Fixed rate mortgages, which are extremely common in the US especially for average priced homes, maintain the same monthly payment for 30 years. This is a great

Fixed rate mortgages, which are extremely common in the US especially for average priced homes, maintain the same monthly payment for 30 years. This is a great deal for buyers - it’s a subsidy paid for by taxpayers. My first home was about 45% of my income. 15 years later (I rent it out now) it’s absurdly affordable for the area. Combined with workers’ natural tendency to increase their income as years of experience increase, what is unaffordable at the time of purchase easily becomes more affordable when given time.

PaulDavisThe1st 4y ago
> it’s a subsidy paid for by taxpayers. I think you're referring to the tax credit for mortgage interest payments? If so ... this subsidy ironically only applies to those carrying the largest mortgages. During the Trump administration, the standard deduction was doubled, which means that (a) many, many people who used to itemize (and thus include mortgage interest payments) would no longer do so (b) this deduction somewhat levelled the playing field between median renters and median mortgage holders. To have enough mortgage interest payments that you can itemize deductions implies a very substantial mortgage. $500,000 @ 4% only gets you to $20k of mortgage interest in a year, not enough (by itself) to make you itemize. So yeah, but no, except sort of.
- monero-xmr 4y ago
  No - a fixed rate mortgage, which can be paid off early without penalty, refinanced at any time, and fully backstopped by the US government, is a luxury only possible because of subsidy. A free market for mortgages would not enable such a product, or at least not with such amenable terms.
  - ClumsyPilot 4y ago
    > A free market for mortgages would not enable such a product The complaint doesnt make sence. 'Free market' does not set fiscal policy or manage base interest rates at all. There is no subsidy - If you take a 2% mortgage and suddenly base rate goes up to 20%, the taxpayer does not pay 18%. The government would be paying itself.
    - monero-xmr 4y ago
      The terms are such that the government has to backstop them because the risk is not commensurate with the terms
  - cmrdporcupine 4y ago
    Indeed, a 30 year fixed is an oddity of the US market, not really present elsewhere. In Canada, and other G7 countries, the rate cannot be typically fixed beyond a 3 or 5 year period. The rate is then renegotiated at the end of that term. That said, our housing markets don't look that different from the US. In fact it's worse in Canada, with housing prices escalating far beyond the affordability graph without correction, in metro areas it looks worse than many places in the US. A minor correction may be happening now, but nothing drastic. So I don't think the rate structure of US mortgages is implicated in price inflation. It's deeper structural aspects of western economies right now.
    - kgwgk 4y ago
      In fact the oddity is the « can be paid off early without penalty » part that makes them popular.
kevin_nisbet 4y ago
> My first home was about 45% of my income. 15 years later (I rent it out now) it’s absurdly affordable for the area To be fair, this also occurred with variable rate mortgages (I'm in Canada, so we don't have the long term fixed rate mortgages you get in the US anyways). But in a condo with variable mortgage + counting the building maintenance fee's, I'm paying something like 30% of what it would take to make the same purchase today at last known prices and current interest rates. In my case, this is more related to an average of 20% appreciation YoY since I bought it, and never having to increase my payments. And this is for a condo in a high rise building... not many folks preferred place to live.

PaulDavisThe1st 4y ago

> it’s a subsidy paid for by taxpayers. I think you're referring to the tax credit for mortgage interest payments? If so ... this subsidy ironically only applies to those carrying the largest mortgages. During the Trump administration, the standard deduction was doubled, which means that (a) many, many people who used to itemize (and thus include mortgage interest payments) would no longer do so (b) this deduction somewhat levelled the playing field between median renters and median mortgage holders. To have enough mortgage interest payments that you can itemize deductions implies a very substantial mortgage. $500,000 @ 4% only gets you to $20k of mortgage interest in a year, not enough (by itself) to make you itemize. So yeah, but no, except sort of.

monero-xmr 4y ago
No - a fixed rate mortgage, which can be paid off early without penalty, refinanced at any time, and fully backstopped by the US government, is a luxury only possible because of subsidy. A free market for mortgages would not enable such a product, or at least not with such amenable terms.
- ClumsyPilot 4y ago
  > A free market for mortgages would not enable such a product The complaint doesnt make sence. 'Free market' does not set fiscal policy or manage base interest rates at all. There is no subsidy - If you take a 2% mortgage and suddenly base rate goes up to 20%, the taxpayer does not pay 18%. The government would be paying itself.
  - monero-xmr 4y ago
    The terms are such that the government has to backstop them because the risk is not commensurate with the terms
- cmrdporcupine 4y ago
  Indeed, a 30 year fixed is an oddity of the US market, not really present elsewhere. In Canada, and other G7 countries, the rate cannot be typically fixed beyond a 3 or 5 year period. The rate is then renegotiated at the end of that term. That said, our housing markets don't look that different from the US. In fact it's worse in Canada, with housing prices escalating far beyond the affordability graph without correction, in metro areas it looks worse than many places in the US. A minor correction may be happening now, but nothing drastic. So I don't think the rate structure of US mortgages is implicated in price inflation. It's deeper structural aspects of western economies right now.
  - kgwgk 4y ago
    In fact the oddity is the « can be paid off early without penalty » part that makes them popular.

kevin_nisbet 4y ago

> My first home was about 45% of my income. 15 years later (I rent it out now) it’s absurdly affordable for the area To be fair, this also occurred with variable rate mortgages (I'm in Canada, so we don't have the long term fixed rate mortgages you get in the US anyways). But in a condo with variable mortgage + counting the building maintenance fee's, I'm paying something like 30% of what it would take to make the same purchase today at last known prices and current interest rates. In my case, this is more related to an average of 20% appreciation YoY since I bought it, and never having to increase my payments. And this is for a condo in a high rise building... not many folks preferred place to live.