4 ms·
This is mostly because US has these crazy 30y fixed mortgages right? Everyone who owns a loan like that is sitting on huge gains and will find it very difficult
by Panzer04 3y ago
This is mostly because US has these crazy 30y fixed mortgages right? Everyone who owns a loan like that is sitting on huge gains and will find it very difficult to sell given the effective loss they would realise - transitioning to another house at a 4 percentage point higher interest rate will cost them a ton of money.
- Spivak 3y agoYes, a lot of my friends are "trapped" (not really they're actually quite happy about it) in their houses because they have 2-3% interest rates locked in which is today is almost free money.
- mixmastamyk 3y agoPrices rose because of those rates, so not always the bargain it may have seemed.
- hyperbovine 3y agoNot if you refinanced.
- mixmastamyk 3y agoFinancing affects the financing part of the payment, unsurprisingly… not the price part.
- kortilla 3y agoIt’s definitely why I wouldn’t sell under anything but duress. Going from my current 3% to 7% would be crushing.
- vb234 3y agoWe’re in the same boat. We live in an apartment building in a neighborhood we love. Recently, a larger apartment in our building came onto the market. The seller is desperate to offload and the size would really suit our family’s long term needs. However, the double whammy of the loss we’d take selling our unit while paying a higher mortgage at a higher interest rate is just too much to stomach.
- NoPicklez 3y agoI was amazed to realise that in the US they can have multiple decade long fixed mortgages. Do they also have the ability to refinance long term to a lower rate if it becomes available? In Australia, we have fixed and variable with all fixed rates being locked for only a number of years. So you are always going to have the bear increases in mortgage rates if they occur.
- Clubber 3y ago>Do they also have the ability to refinance long term to a lower rate if it becomes available? Yes. You can also borrow against whatever equity you have in your house. Say you bought a house for $200 and it's now worth $250, you can borrow against part of that $50K equity if you refinance, for example if you need a new roof. I don't think you can borrow 100% of your equity though, I seem to remember 80%. It's been a while since I've done it.
- bombcar 3y ago80% is the limit for what can easily be resold to Freddie Mac or Fannie Mae - government programs that buy conforming loans and guarantee and resell them as bonds. You can go above 80% but costs rise sharply.
- analog31 3y ago>>> Do they also have the ability to refinance long term to a lower rate if it becomes available? Typically yes. There are mortgages that penalize you for paying them off early, but the conventional wisdom is to avoid those. For our previous house, my family re-financed twice. In our present house, we got a 15 year mortgage, and paid it off early.
- judge2020 3y ago> Typically yes. There are mortgages that penalize you for paying them off early, but the conventional wisdom is to avoid those. And these clauses were largely made illegal by the 2010 Dodd-Frank Act.
- 3y ago
- marssaxman 3y agoHow is it crazy? How else could one reliably afford to buy a house? The main lesson of the 2008 housing crisis, as I saw it, was that adjustable-rate mortgages are untenable; I certainly would never sign up for one, because it leaves you too vulnerable.
- boulos 3y agoMost of the world lacks this product. In the UK, for example, I think the most popular product is what we'd call a 2/1 ARM!
- sircastor 3y agoAdjustable Rate Mortgages destroyed a lot of people’s wealth in the US back in the housing bubble. I don’t know if the laws are supportive of borrowers in the UK, but in the States ARMs have a bad reputation that they probably won’t shed for 2-3 generations.
- marssaxman 3y agoHow does this work? Are people just routinely evicted when the rate goes up and they can't afford the payment anymore, or is there some reason this doesn't happen? From my US perspective, I would rather rent forever than risk such a loan, so I suppose there must be something else at play which makes your approach less awful than it would be if we did that here.
- bombcar 3y agoYou buy less house and you can get squeezed. It’s closer to renting.
- idontpost 3y ago[dead]
- epistasis 3y agoThe existence of this product inflates prices, making it difficult for people to buy except with a 30 year mortgage. The real winners are those who own before the government enforces new price inflation policies on the market. (The only reason we have 30 year fixed mortgages is because of government intervention in the market.)
- lotsofpulp 3y agoHow is it an effective loss (or gain) if they have not sold the asset (which they are currently living in)?
- williamstein 3y agoOne Example: you can get a "Home Equity Line of Credit" (HELOC) against your house, then use that money to do things, e.g., remodeling (the interest from such loans is in some cases tax deductible). The house you would own with a 3% interest rate is likely worth significantly more than the house you would own with a 7% interest rate, so the potential impact of a HELOC is higher.
- chank 3y agoIt's not a loss if they're still net positive from their unrealized gains. It's basically the home ownershipt version of "I know what I've got" but they in fact don't.
- commandlinefan 3y ago> difficult to sell Bought the house I’m in in 2010 at a 4% fixed 30-year. I’m never leaving.