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It’s insane that Canada doesn’t have true 30 year fixed mortgages. Every 5 years the rates will update and if the payment is too high for you there’s nothing yo
by xwdv 3y ago
It’s insane that Canada doesn’t have true 30 year fixed mortgages. Every 5 years the rates will update and if the payment is too high for you there’s nothing you can do about it. How can you live?
- Eddy_Viscosity2 3y agoThis system worked great while the rates were declining. But now... less so.
- voisin 3y agoIn the US on 30 year fixed rates I understand you can refinance down without penalty. Can someone confirm?
- ethbr1 3y agoCorrect. You're essentially paying to originate a new mortgage (with the same originator as your previous or anyone else). Proceeds pay off previous mortgage, and no one can really tell you no. I'm not sure if any US mortgage can have prepayment penalties and be compliant? (for resale of the mortgage debt) Worst I've seen is "If you pay fully before X date, we'll charge you the closing fees we comp'd you originally."
- nemo44x 3y agoNo mortgages don’t have early payoff penalties. The bank doesn’t really care. They’ve probably sold your mortgage off to be packaged in a bond anyways. They’re mainly in the business of selling loans. There’s a big margin on that. They’re more than happy to payoff your old one and write a new one and collect those fees.
- ethbr1 3y agoIs there anything that prevents it though? If not, I assume someone would have written a 3/1 ARM with predatory early repayment provisions, so I'm guessing there's probably a conformant mortgage guideline (e.g. from *Mac) that prevents clauses like that.
- curiousgal 3y agoRefinancing only works when the value of your house increased.
- gorjusborg 3y agoThere's nothing about refinancing that requires your house value to increase. The concept is that you are taking out a loan to pay off an earlier loan. If you borrowed at 8% and rates dropped to 2%, you could refinance even if your house price dropped, and it would still make sense, as you borrowed what you borrowed, and still owe it. Now, if you are trying to refinance and take some money out from equity, sure, that relies on having greater equity than the loan value.
- chii 3y ago> If you borrowed at 8% so whoever lent you at 8% would take a loss if you could just abandon that rate and went with someone else's 2% rate. Therefore, it can't be this simple - somebody must be eating a loss. I suspect that 'somebody' is Freddie Mac and Fannie Mae , which is a quasi-gov't corporation and therefore, they might be able to take the loss without worrying about profitability.
- Spivak 3y ago> so whoever lent you at 8% would take a loss Why would they? If I lend you $100 at 8% interest and for simplicity let's say it's an interest only loan so you only pay the interest I get $8/yr for my trouble. Then you refinance with someone else at 2% and I get my $100 back. All good, now it's available to me to loan back out. The only thing I've "lost" is future profits but you also could have just paid off the loan entirely in cash to the same effect.
- chii 3y ago> The only thing I've "lost" is future profits but you also could have just paid off the loan entirely in cash to the same effect. but this is a real loss, since the original loan contract was for 8% p/a for X years. In a different country like australia, a fixed term loan cannot be paid off without the expected interest. This is why i am confused as to what makes refinancing work - who eats the loss?
- granshaw 3y agoThe US is one of the few countries in the world that HAS a fixed mortgage longer than 5 years... we're the exception not the norm
- xwdv 3y agoI think Japan has a 100 year.
- xw3098 3y agoThat was a thing during Japan’s real estate bubble in the 80s but I doubt any banks still offer that.
- ManuelKiessling 3y agoGermany: fixed mortgages are the norm (actually never even heard of another type), common runtimes are 10, 15, and 20 years, and no matter what the runtime is, as the borrower you can simply exit the contract without even giving a reason after 10 years; and that’s not something in the contract, it’s a federal law. You obviously have to pay back the remaining debt, but this makes it super smooth to either pay off all debt in one go or refinance.
- bhelkey 3y agoAre you not allowed to refinance other than at the 10 year mark?
- ManuelKiessling 3y agoYou can refinance earlier, or any time after the 10-year-period, if your contract is 10+ years. Anything after the 10-year-period comes without any kind of penalty. Getting out of the contract earlier is possible, but comes with a penalty called Vorfälligkeitsentschädigung — it boils down to the bank demanding the interest payments you would have paid if you‘d stayed in the contract for the whole 10 years. However, afaik, if you also had an agreement on „Sondertilgungen“, that is, if the contract allows to pay x% of additional down payment every year, the bank must assume you had paid this for the remaining years in the contract. No financial advice.
- voisin 3y agoIt doesn’t even seem to make sense from an economic standpoint, leaving the population essentially to gamble and having approx 20% of mortgages coming due each year, threatening the banking sector.
- tmpX7dMeXU 3y agoI also live in a country without full-term fixed mortgages, however we also don’t have a secondary market for mortgages. AFAIK these two things are at the very least not entirely orthogonal, and to be blunt I don’t think anyone is looking to the US as a source of inspiration for that aspect of your mortgage system.
- Gigachad 3y agoSurely this isn’t that big of a deal for most people? After 5 years you could just refinance the loan and reset it to 30 years again with lower payments.