4 ms·
Is this pay more now for a lower interest rate? To compare it to bonds, imagining I can sell my own bonds: To raise the same amount of money issuing a bond wi
by throwaway154 3y ago
Is this pay more now for a lower interest rate?
To compare it to bonds, imagining I can sell my own bonds: To raise the same amount of money issuing a bond with a 3% coupon now vs. issuing one with a 7% coupon now, I'd have to issue more of the 3% coupon bond.
This seems an obscure bet on perceptions of house prices, house purchase heuristics and mentality, and a lot of imagination. I can imagine why lenders are 'cool to the idea'.
Please correct me if the above understanding's incorrect.
- bko 3y agoThere's money on the table. Basically a 3% mortgage is worth maybe 90% of what is due. When you sell, you basically give them back $100 and the lender is very happy (they just made $10!). The reverse is true when rates have historically been higher. Prepayments are path dependent. So now you essentially have this $10 surplus by not trading in your loan worth 90%. How the buyer and seller split that is up to them. For instance the buyer could say I want an extra $10 on top of what you would have paid without the transfer or the reverse. But realistically the buyer would pay a little more for a net lower payment. Win-win. It's very clever. The big downside is having to get a second lien to cover the remaining amount which would likely be higher rate because it'll be a second lien. And the hassle of having two mortgages.