5 ms·

Would a bank pay cash to be relieved of a 3% mortgage? My brother sold his house half a year ago when he split up from his partner. I'm pretty sure they had a 1

by tinco 3y ago

Would a bank pay cash to be relieved of a 3% mortgage? My brother sold his house half a year ago when he split up from his partner. I'm pretty sure they had a 15yr 2% mortgage. Did they do the bank a huge favor by just selling the house and dissolving the mortgage?

D13Fd 3y ago
Yes it would be a favor, assuming there is enough demand that the bank can then use the money from the 2% mortgage to issue a 7% mortgage or another >2% mortgage. Otherwise probably no.
- bryanlarsen 3y ago
  They don't have to put it into a 7% mortgage, they can put it into a 4.6% 30 year t-bill, or something in between.
bryanlarsen 3y ago
Yes, they did the bank a huge favour. But likely they didn't have a choice, ~75% of mortgages are non-transferable, and they cannot hold the mortgage without the collateral of the house. But if they were part of the ~25% of mortgage holders with transferable or assignable mortgages they had other options.
- tinco 3y ago
  Yeah so I was wondering if a possible solution to your proposed market failure could be a service that motivates people to get rid of their mortgages by buying them off. This would eliminate the problem of having to find a counter party, you only have to find the people willing to compromise on their 3% mortgages. Basically the business would be: Find the amount of money banks would pay upfront to the holders of the 3% mortgages, market that amount of money to the holders looking to move that otherwise wouldn't want to. It would create a little bit of extra liquidity in the market and it might allow home owners to deploy their excess capital that they now hold back because of the awful deal they get. Weird thing, I'm in The Netherlands and here 100% of the mortgages are transferable to a new house, at least within the same bank. I tried googling why that is but I only found all the banks advertising the fact without saying if they do that to comply with some government regulation.
prepend 3y ago
> Did they do the bank a huge favor by just selling the house and dissolving the mortgage? No, the bank borrowed for 15 years fixed as well so they were getting their projected return on yesterday’s dollars. It’s not like they now have more money to invest better. Banks effectively have infinite capital for mortgages and make pretty much the same margin whether rates are 2% or 30%.
- bryanlarsen 3y ago
  The bank probably just bundled and sold on the mortgage. But somebody is holding the mortgage, and it is likely they borrowed for 15 years fixed. But when the brother paid off their mortgage, the previous holder can now use that money to buy back that 15 year fixed bond at a massive discount. That massive discount is the huge favour the brother did.

by tinco 3y ago

D13Fd 3y ago

Yes it would be a favor, assuming there is enough demand that the bank can then use the money from the 2% mortgage to issue a 7% mortgage or another >2% mortgage. Otherwise probably no.

bryanlarsen 3y ago
They don't have to put it into a 7% mortgage, they can put it into a 4.6% 30 year t-bill, or something in between.

bryanlarsen 3y ago

Yes, they did the bank a huge favour. But likely they didn't have a choice, ~75% of mortgages are non-transferable, and they cannot hold the mortgage without the collateral of the house. But if they were part of the ~25% of mortgage holders with transferable or assignable mortgages they had other options.

tinco 3y ago
Yeah so I was wondering if a possible solution to your proposed market failure could be a service that motivates people to get rid of their mortgages by buying them off. This would eliminate the problem of having to find a counter party, you only have to find the people willing to compromise on their 3% mortgages. Basically the business would be: Find the amount of money banks would pay upfront to the holders of the 3% mortgages, market that amount of money to the holders looking to move that otherwise wouldn't want to. It would create a little bit of extra liquidity in the market and it might allow home owners to deploy their excess capital that they now hold back because of the awful deal they get. Weird thing, I'm in The Netherlands and here 100% of the mortgages are transferable to a new house, at least within the same bank. I tried googling why that is but I only found all the banks advertising the fact without saying if they do that to comply with some government regulation.

prepend 3y ago

> Did they do the bank a huge favor by just selling the house and dissolving the mortgage? No, the bank borrowed for 15 years fixed as well so they were getting their projected return on yesterday’s dollars. It’s not like they now have more money to invest better. Banks effectively have infinite capital for mortgages and make pretty much the same margin whether rates are 2% or 30%.

bryanlarsen 3y ago
The bank probably just bundled and sold on the mortgage. But somebody is holding the mortgage, and it is likely they borrowed for 15 years fixed. But when the brother paid off their mortgage, the previous holder can now use that money to buy back that 15 year fixed bond at a massive discount. That massive discount is the huge favour the brother did.