3 ms·
> When interest rates go up, refinance and sell you previous mortgage for cheap. Can you explain this, because it seems opposite to the rest of the world (and
by breput 3y ago
> When interest rates go up, refinance and sell you previous mortgage for cheap.
Can you explain this, because it seems opposite to the rest of the world (and since this is Hacker News, world = USA). You refinance...at a higher rate, and this is a good thing long-term?
- madsbuch 3y agoif you have a loan of 1m at 1% interest (yes, that was the interest in Denmark before covid), then you can sell that loan for 800k and refinance with a new loan of 5% interest. in turn you cut off 200k of your loan. This technique obviously only works under the assumption that the interest rates are going to drop long term, so you can refinance back to the lower rate later (which all of the people who made the trick believes).
- egman_ekki 3y agoThis up conversion can still make sense even if the interest rates don’t go down as with the 800k/5% mortgage, a larger portion of your monthly payment is made up of interest, thus also your tax bonus is higher and in net terms you can end up ahead even in time horizon of 20+ years before the down conversion.
- madsbuch 3y agoYep :)