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where variable rate mortgages (for example following Euribor) are the default That seems so reckless. Why would anyone risk the largest part of their budget sp
by causi 4y ago
where variable rate mortgages (for example following Euribor) are the default
That seems so reckless. Why would anyone risk the largest part of their budget spiraling out of control at the whim of the market?
- klodolph 4y agoI mean, welcome to 2008. https://en.wikipedia.org/wiki/Subprime_mortgage_crisis https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
- Ancalagon 4y agoFixed-rate mortgages are actually an incredibly bad deal for the lender when rates are low like they were last year. The lender ends up holding debt that - in 30 years - is worth hardly more than what they lent out.
- digdugdirk 4y agoTo take a different perspective on this - why would it make sense to subsidize the purchase of larger than necessary homes because they're able to lock in low rates for a lifetime? It would make far more sense if homeowners had more skin in the game, and had to make rational choices about the size and location of the home they purchased.
- AlexandrB 4y agoMortgages with a rate fixed for >5 years are not really widely available in Canada (for example). So it's not like you have a choice. From another perspective, 25 year fixed mortgages seem like a subsidy to homebuyers that protects them from the market. Who ends up paying the losses on a low rate 25 year fixed mortgage when central bank rates go up?
- owisd 4y agoTraders in interest rate swaps
- aftbit 4y agoHow does this impact home prices and the affordability of homes? If I bought my current (US) home on a 5 year mortgage, my payment would have been above $12,000 per month, which seems pretty unapproachable for the majority of buyers. Or is it a 5 year fixed / 25 year variable deal? How does refinancing work under those circumstances? Certainly a 30 year fixed mortgage is an amazing deal for a homeowner. If the rates go up, you are protected. If they go down, you can refinance into the lower rates, and likely at a better LTV ratio (as you've paid more equity into your home). At this point, with my interest rate, I am better off putting excess cash into a bank account or Treasury bonds than paying my loan faster.
- AlexandrB 4y agoIt's a 5 year term on a 25 year mortgage. Basically you refinance the remainder of the mortgage every 5 years under new terms (and possibly a different financial institution). If you choose a fixed rate for the five year term, your interest rate will change when you refinance based on the market rates at that time. Edit: Also if you choose a variable rate mortgage, your monthly payment doesn't automatically change (unless the payment is insufficient to service interest) as the rate changes, instead you end up paying off less of the principal which makes refinancing even more painful.
- vasco 4y agoIn my country the monthly payment actually goes up when rates change.
- causi 4y ago25 year fixed mortgages seem like a subsidy to homebuyers that protects them from the market. Can you explain how this is a subsidy when it's a private lender offering me the mortgage? Why would they offer it to me at that rate if it was a bad financial move?
- reducesuffering 4y agoThe private lender is most likely just making a commission on doing the paperwork to create the mortgage, but they're selling it to the government a la Freddie Mac and Fannie Mae. It's what a "conforming loan" is. https://www.rocketmortgage.com/learn/conforming-loan https://www.rocketmortgage.com/learn/conforming-loan
- __turbobrew__ 4y agoWhy should the housing market be isolated from the larger economy?