4 ms·

Mortgages 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,

Mortgages 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 ago
Traders in interest rate swaps
aftbit 4y ago
How 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 ago
  It'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 ago
    In my country the monthly payment actually goes up when rates change.
causi 4y ago
25 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 ago
  The 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

owisd 4y ago

Traders in interest rate swaps

aftbit 4y ago

How 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 ago
It'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 ago
  In my country the monthly payment actually goes up when rates change.

causi 4y ago

25 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 ago
The 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