7 ms·

This astonishes me about the US real estate market and is something I was only educated to on HN in the last week or so. I had absolutely no idea that 30 year

This astonishes me about the US real estate market and is something I was only educated to on HN in the last week or so. I had absolutely no idea that 30 year fixed mortgages were not only widely available but the common standard there.

hnuser847 4y ago
It’s because our federal government purchases the majority of residential mortgages, and therefore indirectly sets the standard for the entire market. It’s a major reason why real estate is such an attractive investment.
- Nemo_bis 4y ago
  Yes. The problem with the article is that it focuses on the value of the asset but forgets the costs. The entire system is stacked in favor of home-ownership by means of tax and bank subsidies.
ska 4y ago
I can't think of another country that has anything like it, and it's largely because of the government market interference (via Fannie/Freddy especially) It's going to continue to have some weird knock on effects.
- thatfrenchguy 4y ago
  France has fixed rate mortgages
  - kazen44 4y ago
    So has the netherlands. (although getting a 30 year long one might be hard, 20 years is far more common).
  - highwaylights 4y ago
    That are fixed to 30 years out? This is legitimately fascinating to me that someone would offer that deal.
    - deleted 4y ago
      [deleted]
  - ska 4y ago
    Lots of places have fixed rate, but not for long periods like the US. Does France offer 30 year low rates?
- mayormcmatt 4y ago
  Too lazy to do the legwork for the actual information, but Japan has, or had, similar mortgages to the US -- even 100-year intergenerational mortgages. An anecdote related to this: when I worked at a Japanese company, one of my coworkers' parents had gone underwater on some commercial real estate in Tokyo after the bubble burst there in the 90s. They had taken out such a mortgage and now the adult children were all working day and night jobs to pay it off.
  - bluGill 4y ago
    The Us has bankruptcy laws so that the children don't have to work to pay it off. Though depending on your situation and belief in the future maybe you would want to - if things turn around you have that building, while if you go bankrupt it is sold. (of course we are talking above Japan of 30 years ago so you can now check how things have gone, but that doesn't mean they will go the same next time)
xapata 4y ago
I'm an economist, yet I only recently realized that adjustable-rate mortgages are economists' consensus best choice for consumers. Based on the expectation that personal economics are well-correlated with broad market economics, and that interest rates will decline when the economy struggles.
- sokoloff 4y ago
  I have a hard time squaring that with 15 year fixed rate mortgages being under 3% for several years in the very recent past and 30 year fixed mortgages being at/under 3% for part of that time. How would an adjustable rate mortgage be the best choice for consumers in that situation? I got an initial mortgage at 5.625%, refi’d to 3.875%, then again to some ~3% 15-year. I never seriously considered an ARM (and now wish I'd refi'd a third time back to a fresh 30-year fixed just to keep using that cheap money for longer).
  - Ekaros 4y ago
    In past 10 year, variable rates commonly used in Europe have even been sub-0%. Meaning effective rate could have been under 1%.
  - __derek__ 4y ago
    Most homebuyers don't hold their mortgage to term, whether due to selling or refinancing (like you). All things equal, an ARM will be priced lower than a longer-term FRM, so taking out the ARM with the intention to sell or refinance will mean lower guaranteed costs on the initial mortgage. They're basically a call option on rates during/after the initial fixed term. Even if rates go up a lot (like now), the pre-defined ratchet probably keeps them competitive relative to FRMs. Eventually, a weaker economy probably brings lower rates, especially combined with more equity and a shorter term. When 30-year FRM rates are 3%, though, take the fixed.
  - deleted 4y ago
    [deleted]
- kilgnad 4y ago
  Why don't you get fixed rate so that the rate never goes up. When the background rate goes down you refinance for another lower fixed rate.
bluSCALE4 4y ago
Yep, just need work history and you're set. Lot of people don't want to own because it's a maintenance nightmare and they're not work. I'm out about 60k not including refinancing due to maintenance and I'm handy.
scruple 4y ago
What are the mortgage terms where you're from? In always curious to understand how other countries and systems deal with this but I'm largely ignorant to it outside of anecdotes like this.
- kspacewalk2 4y ago
  The standard in Canada, for example, is a 25 year mortgage which you renew every 5 years (fixed or variable, your choice).
  - gwright 4y ago
    Could you clarify what you mean by "renew"? That sounds a mortgage with rates that are reset every five years, which doesn't sound like "fixed" to me.
    - orangepurple 4y ago
      I think the technical term for this is a 5/5 ARM which is NOT a "fixed" rate loan. Most of the world borrows with ARMs.
      - kgwgk 4y ago
        (in some countries) the technical term is “fixed-rate (as opposed to variable-rate) mortgage” - but the mortgage term can be much lower than the amortization period.
    - pixelesque 4y ago
      If it's the same as in the UK, Australia and NZ, then the rates are "fixed" for sub-durations within the overall length of the mortgage/home loan, and at the end of the sub-duration, you negotiate what the "fixed" rate is for the next sub-duration with the bank / mortgage lender. So for a twenty year "fixed" mortgage, you could end up splitting that into "fixed" rate chunks of 3 years, 3 years, 5 years, 3 years, 1 year, 3 years, years, 2 years. So the rate is "fixed" for what's often called the "fixed period" (sub-duration), giving you a bit of stability, but over the longer term of the overall mortgage, things can track interest rates more generally as you renew the rate.
mortehu 4y ago
I just love this quote from Sid Verma: "A lot of Americans are bragging that in their country they can get a fixed mortgage for 30 years. But it's worth remembering that for cultural and historic reasons, a lot of Europeans choose to reject socialism." https://twitter.com/_SidVerma/status/1575185906218442752?s=20 https://twitter.com/_SidVerma/status/1575185906218442752?s=2... Note that the mortgages aren't even fixed rate, since you can replace them with a lower rate mortgage if rates drop, with insignificant penalty. Nobody will sell a mortgage like that if their goal is profit (other than to hand off to the US government).
- orangepurple 4y ago
  Insignificant penalty?! Maybe if all you think about is your monthly payment and not the total payment amount over time. You should check the amortization schedule of a typical 30 year fixed rate loan. You are paying nearly nothing but interest for about 10 years, THEN you start paying down the principal balance significantly more. The first ten years you are basically renting your property from the bank. When you refinance the property the amortization schedule starts all over again where you are barely paying down your principal balance. The banks always need their cut before you are allowed to build equity.
  - WalterBright 4y ago
    I've refinanced many times to get lower interest rates. Did not pay any "points" or penalties to do so. > The banks always need their cut before you are allowed to build equity. I've never had a mortgage that had any sort of prepayment penalty. (Always read the mortgage contract front to back to make sure there isn't one.)
  - mortehu 4y ago
    Prepayment penalties are illegal after three years so there's no reason you would pay only interest for 10 years. If you can get a better loan, you can pay all the principal instantly and no more interest.
  - entangledqubit 4y ago
    I think the point was that people with mortgages will opt into lower interest rates but will clearly not opt into higher rates. (Assuming the interest savings is greater than the refinance cost.) I'm not sure why you bring up the amortization schedule since since you definitely save on the overall interest side of the mortgage. Put another way, if you get the lower interest rate and keep paying the same monthly payment you were paying before, you'll pay everything off faster.
ipsi 4y ago
In Germany, 5 - 20 years seems to be pretty common. I haven't seen 30 years, but I wouldn't say it was impossible.

hnuser847 4y ago

It’s because our federal government purchases the majority of residential mortgages, and therefore indirectly sets the standard for the entire market. It’s a major reason why real estate is such an attractive investment.

Nemo_bis 4y ago
Yes. The problem with the article is that it focuses on the value of the asset but forgets the costs. The entire system is stacked in favor of home-ownership by means of tax and bank subsidies.

ska 4y ago

I can't think of another country that has anything like it, and it's largely because of the government market interference (via Fannie/Freddy especially) It's going to continue to have some weird knock on effects.

thatfrenchguy 4y ago
France has fixed rate mortgages
- kazen44 4y ago
  So has the netherlands. (although getting a 30 year long one might be hard, 20 years is far more common).
- highwaylights 4y ago
  That are fixed to 30 years out? This is legitimately fascinating to me that someone would offer that deal.
  - deleted 4y ago
    [deleted]
- ska 4y ago
  Lots of places have fixed rate, but not for long periods like the US. Does France offer 30 year low rates?
mayormcmatt 4y ago
Too lazy to do the legwork for the actual information, but Japan has, or had, similar mortgages to the US -- even 100-year intergenerational mortgages. An anecdote related to this: when I worked at a Japanese company, one of my coworkers' parents had gone underwater on some commercial real estate in Tokyo after the bubble burst there in the 90s. They had taken out such a mortgage and now the adult children were all working day and night jobs to pay it off.
- bluGill 4y ago
  The Us has bankruptcy laws so that the children don't have to work to pay it off. Though depending on your situation and belief in the future maybe you would want to - if things turn around you have that building, while if you go bankrupt it is sold. (of course we are talking above Japan of 30 years ago so you can now check how things have gone, but that doesn't mean they will go the same next time)

xapata 4y ago

I'm an economist, yet I only recently realized that adjustable-rate mortgages are economists' consensus best choice for consumers. Based on the expectation that personal economics are well-correlated with broad market economics, and that interest rates will decline when the economy struggles.

sokoloff 4y ago
I have a hard time squaring that with 15 year fixed rate mortgages being under 3% for several years in the very recent past and 30 year fixed mortgages being at/under 3% for part of that time. How would an adjustable rate mortgage be the best choice for consumers in that situation? I got an initial mortgage at 5.625%, refi’d to 3.875%, then again to some ~3% 15-year. I never seriously considered an ARM (and now wish I'd refi'd a third time back to a fresh 30-year fixed just to keep using that cheap money for longer).
- Ekaros 4y ago
  In past 10 year, variable rates commonly used in Europe have even been sub-0%. Meaning effective rate could have been under 1%.
- __derek__ 4y ago
  Most homebuyers don't hold their mortgage to term, whether due to selling or refinancing (like you). All things equal, an ARM will be priced lower than a longer-term FRM, so taking out the ARM with the intention to sell or refinance will mean lower guaranteed costs on the initial mortgage. They're basically a call option on rates during/after the initial fixed term. Even if rates go up a lot (like now), the pre-defined ratchet probably keeps them competitive relative to FRMs. Eventually, a weaker economy probably brings lower rates, especially combined with more equity and a shorter term. When 30-year FRM rates are 3%, though, take the fixed.
- deleted 4y ago
  [deleted]
kilgnad 4y ago
Why don't you get fixed rate so that the rate never goes up. When the background rate goes down you refinance for another lower fixed rate.

bluSCALE4 4y ago

Yep, just need work history and you're set. Lot of people don't want to own because it's a maintenance nightmare and they're not work. I'm out about 60k not including refinancing due to maintenance and I'm handy.

scruple 4y ago

What are the mortgage terms where you're from? In always curious to understand how other countries and systems deal with this but I'm largely ignorant to it outside of anecdotes like this.

kspacewalk2 4y ago
The standard in Canada, for example, is a 25 year mortgage which you renew every 5 years (fixed or variable, your choice).
- gwright 4y ago
  Could you clarify what you mean by "renew"? That sounds a mortgage with rates that are reset every five years, which doesn't sound like "fixed" to me.
  - orangepurple 4y ago
    I think the technical term for this is a 5/5 ARM which is NOT a "fixed" rate loan. Most of the world borrows with ARMs.
    - kgwgk 4y ago
      (in some countries) the technical term is “fixed-rate (as opposed to variable-rate) mortgage” - but the mortgage term can be much lower than the amortization period.
  - pixelesque 4y ago
    If it's the same as in the UK, Australia and NZ, then the rates are "fixed" for sub-durations within the overall length of the mortgage/home loan, and at the end of the sub-duration, you negotiate what the "fixed" rate is for the next sub-duration with the bank / mortgage lender. So for a twenty year "fixed" mortgage, you could end up splitting that into "fixed" rate chunks of 3 years, 3 years, 5 years, 3 years, 1 year, 3 years, years, 2 years. So the rate is "fixed" for what's often called the "fixed period" (sub-duration), giving you a bit of stability, but over the longer term of the overall mortgage, things can track interest rates more generally as you renew the rate.

mortehu 4y ago

I just love this quote from Sid Verma: "A lot of Americans are bragging that in their country they can get a fixed mortgage for 30 years. But it's worth remembering that for cultural and historic reasons, a lot of Europeans choose to reject socialism." https://twitter.com/_SidVerma/status/1575185906218442752?s=20 https://twitter.com/_SidVerma/status/1575185906218442752?s=2... Note that the mortgages aren't even fixed rate, since you can replace them with a lower rate mortgage if rates drop, with insignificant penalty. Nobody will sell a mortgage like that if their goal is profit (other than to hand off to the US government).

orangepurple 4y ago
Insignificant penalty?! Maybe if all you think about is your monthly payment and not the total payment amount over time. You should check the amortization schedule of a typical 30 year fixed rate loan. You are paying nearly nothing but interest for about 10 years, THEN you start paying down the principal balance significantly more. The first ten years you are basically renting your property from the bank. When you refinance the property the amortization schedule starts all over again where you are barely paying down your principal balance. The banks always need their cut before you are allowed to build equity.
- WalterBright 4y ago
  I've refinanced many times to get lower interest rates. Did not pay any "points" or penalties to do so. > The banks always need their cut before you are allowed to build equity. I've never had a mortgage that had any sort of prepayment penalty. (Always read the mortgage contract front to back to make sure there isn't one.)
- mortehu 4y ago
  Prepayment penalties are illegal after three years so there's no reason you would pay only interest for 10 years. If you can get a better loan, you can pay all the principal instantly and no more interest.
- entangledqubit 4y ago
  I think the point was that people with mortgages will opt into lower interest rates but will clearly not opt into higher rates. (Assuming the interest savings is greater than the refinance cost.) I'm not sure why you bring up the amortization schedule since since you definitely save on the overall interest side of the mortgage. Put another way, if you get the lower interest rate and keep paying the same monthly payment you were paying before, you'll pay everything off faster.

ipsi 4y ago

In Germany, 5 - 20 years seems to be pretty common. I haven't seen 30 years, but I wouldn't say it was impossible.