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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
by 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 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.