4 ms·

I 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

I 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 ago
  80% 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.
- SoftTalker 3y ago
  Yes. There are fees associated with a refinance so it might not make sense if you don't plan to be in the house for at least a few more years. But I've refinanced twice (two different houses) once to get a lower rate and once to both get a lower rate and shorten the term to 15 years. The real key is to NOT take equity out when you do this. Many people do but that's like starting over with a higher mortgage balance. Just refinance the outstanding balance if it makes sense, and do not reset the term back to 30 years. I'll have a fully paid-off house in a few years that I plan to retire in with only taxes and insurance to worry about.
  - analog31 3y ago
    Indeed, that's what we did -- refinanced the outstanding balance for a shorter term. We now live in a functioning but small and ugly house, paid off.
xwolfi 3y ago
Normally yes: in France we also have 30y fixed-rate mortgages (in fact, nobody sane would do variable: there's no upside except for the bank). If the rate gets way lower, you can pay the advance repayment fee and reborrow, so the banks directly just cut your rate, everyone does it. And if the rate goes up, the banks swallow the losses. There have been discussions in parliament for decades about the prevalence of fixed rates and the cost it has for the banking sector, but it's nearly impossible now to change it. Banks simply have to make less money, and expand abroad if they want to do more predatory variable rates. The French philosophy is that banks should not speculate too much on mortgage profits and accept to make some but not optimal profit there. Suffice to say that our banks are struggling a little bit more than say British banks.
- hartator 3y ago
  > And if the rate goes up, the banks swallow the losses. Aren’t the mortgages ultimately guaranteed by the European Central Bank? No actual interest risk for the banks.
  - judge2020 3y ago
    Not sure how it works in Europe, but if it's similar to the U.S., the issue is similar to what happened to SVB - they invested a large portion of their cash into low-rate mortgage-backed securities, so when the rates rose, the actual value of the mortgage-backed securities dropped, making it hard to sell them without losing a bunch of money (which was deposits, not their own revenue/profits). The FED did guarantee all money in all accounts - even past $250k - but it's not a great look to be taken over by the fed to ensure money is available for withdrawal to depositors.
    - hartator 3y ago
      SVB was investing Checking accounts money into mid-term bonds. Another kind of scam.
      - judge2020 3y ago
tverbeure 3y ago
We’ve refinanced our previous house 4 times, between 2010 and 2013, bringing the rate down from 5.75% to 3.625%. We did it as soon as the rate dropped another 0.5%.
- judge2020 3y ago
  Did you actually save a lot of money from doing this? Those refinance fees and origination fees can be pretty hefty, typically 1% of the value plus fees like credit score, appraisal, recording, etc.
  - bombcar 3y ago
    It’s quite easy to do the math (you can find a spreadsheet or setup your own) and it will give you an exact date for when one option passes the other(s). We had a worst-case scenario where a highish fixed rate was underwater for quite awhile, but when it finally wasn’t the payoff time for a refinance at a lower rate was in the matter of one or two months (the monthly payment got cut in half or so).
  - JoBrad 3y ago
    I saved enough from my last refinance to double my car payment. Paid it off early.
    - maxerickson 3y ago
      That's seemingly cash flow though. The other poster is asking if the aggressive refinancing paid off the transactions fees that it incurred.
  - tverbeure 3y ago
    Absolutely. You need to find a broker who's willing to eat most of the costs. That's easier in the Bay Area where mortgages are high dollar so that they still make enough money to make it worthwhile. I don't have closing statement with me, but the total cost is way lower than 1%. And, yes, I obviously had a spreadsheet to evaluate the different scenarios.

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 ago
80% 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.
SoftTalker 3y ago
Yes. There are fees associated with a refinance so it might not make sense if you don't plan to be in the house for at least a few more years. But I've refinanced twice (two different houses) once to get a lower rate and once to both get a lower rate and shorten the term to 15 years. The real key is to NOT take equity out when you do this. Many people do but that's like starting over with a higher mortgage balance. Just refinance the outstanding balance if it makes sense, and do not reset the term back to 30 years. I'll have a fully paid-off house in a few years that I plan to retire in with only taxes and insurance to worry about.
- analog31 3y ago
  Indeed, that's what we did -- refinanced the outstanding balance for a shorter term. We now live in a functioning but small and ugly house, paid off.

xwolfi 3y ago

Normally yes: in France we also have 30y fixed-rate mortgages (in fact, nobody sane would do variable: there's no upside except for the bank). If the rate gets way lower, you can pay the advance repayment fee and reborrow, so the banks directly just cut your rate, everyone does it. And if the rate goes up, the banks swallow the losses. There have been discussions in parliament for decades about the prevalence of fixed rates and the cost it has for the banking sector, but it's nearly impossible now to change it. Banks simply have to make less money, and expand abroad if they want to do more predatory variable rates. The French philosophy is that banks should not speculate too much on mortgage profits and accept to make some but not optimal profit there. Suffice to say that our banks are struggling a little bit more than say British banks.

hartator 3y ago
> And if the rate goes up, the banks swallow the losses. Aren’t the mortgages ultimately guaranteed by the European Central Bank? No actual interest risk for the banks.
- judge2020 3y ago
  Not sure how it works in Europe, but if it's similar to the U.S., the issue is similar to what happened to SVB - they invested a large portion of their cash into low-rate mortgage-backed securities, so when the rates rose, the actual value of the mortgage-backed securities dropped, making it hard to sell them without losing a bunch of money (which was deposits, not their own revenue/profits). The FED did guarantee all money in all accounts - even past $250k - but it's not a great look to be taken over by the fed to ensure money is available for withdrawal to depositors.
  - hartator 3y ago
    SVB was investing Checking accounts money into mid-term bonds. Another kind of scam.
    - judge2020 3y ago

tverbeure 3y ago

We’ve refinanced our previous house 4 times, between 2010 and 2013, bringing the rate down from 5.75% to 3.625%. We did it as soon as the rate dropped another 0.5%.

judge2020 3y ago
Did you actually save a lot of money from doing this? Those refinance fees and origination fees can be pretty hefty, typically 1% of the value plus fees like credit score, appraisal, recording, etc.
- bombcar 3y ago
  It’s quite easy to do the math (you can find a spreadsheet or setup your own) and it will give you an exact date for when one option passes the other(s). We had a worst-case scenario where a highish fixed rate was underwater for quite awhile, but when it finally wasn’t the payoff time for a refinance at a lower rate was in the matter of one or two months (the monthly payment got cut in half or so).
- JoBrad 3y ago
  I saved enough from my last refinance to double my car payment. Paid it off early.
  - maxerickson 3y ago
    That's seemingly cash flow though. The other poster is asking if the aggressive refinancing paid off the transactions fees that it incurred.
- tverbeure 3y ago
  Absolutely. You need to find a broker who's willing to eat most of the costs. That's easier in the Bay Area where mortgages are high dollar so that they still make enough money to make it worthwhile. I don't have closing statement with me, but the total cost is way lower than 1%. And, yes, I obviously had a spreadsheet to evaluate the different scenarios.