4 ms·

I think it's actually the reverse. The house is the only collateral, but traditionally you would still owe the deficit if the collateral couldn't be sold to pay

I think it's actually the reverse. The house is the only collateral, but traditionally you would still owe the deficit if the collateral couldn't be sold to pay off the whole loan. This is what's changed in recent decades. A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house.

voisin 2y ago
> A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house. This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to do so, but all of our mortgages are full recourse. I can’t believe how much worse this seems, on a societal level, than the US.
- anon7725 2y ago
  A couple of other good points vs Canada: most fixed-rate US mortgages don’t have a prepayment penalty, and many offer the option to “recast”, which means you can make a lump-sum payment and reamortize your loan while keeping the rate and end date the same. This has the effect of lowering your monthly payment and is often used as an alternative to refinancing if you’re buying and selling a home in sequence.
  - voisin 2y ago
    Thanks for this. I’d never heard of this option and once again I am shocked at how much better Americans have it than Canadians when it comes to mortgages.
  - tzoompy 2y ago
    In Canada, it's actually worse than stated. You do have a prepayment penalty as long as current interest rates are lower than your loan's interest rate. Now that interest rates are higher than they were a couple of years ago, TD Canada Trust waived all my prepayment penalties. They were happy to let me prepay as much as I wanted. It's incredible how one-sided the Canadian system is. Prepayment is acceptable as long as the bank benefits. Prepayment is not ok when the person taking out the loan benefits.
- intuitionist 2y ago
  I mean, manufacturing 30-year fixed rate fully pre-payable non-recourse mortgages does not happen in a free market. It takes a lot of government subsidies to make that happen—in particular the government assumes the credit risk on something like 85% of US mortgages. The United States government is very into the idea of spending its resources to subsidize homeownership. Canada has made different policy decisions, like single-payer healthcare. If the societal choice was between universal healthcare and extremely borrower-friendly mortgages (and I don’t think that it really works that way, at least not in such stark terms) I’m not sure I’d pick the mortgages.
  - bluGill 2y ago
    It can happen. There is risk, but the reward is very high and so it is worth it. However the government often will not allow you to get the full reward and so while the numbers work out for everhone in a free market it doesn't happen. adjustable rate mortgages in the us are lower interest rate. Often in the us they are a better deal - we are just looking at one case where everyone in a fixed rate two years ago is better off than those with adjustable rates.
  - voisin 2y ago
    > It takes a lot of government subsidies to make that happen No doubt, but the upside is a populace not especially at risk to interest rates which is absolutely crushing and systemically risky currently. > in particular the government assumes the credit risk on something like 85% of US mortgages. In Canada, CMHC does something similar so I am not sure we get away with anything special that the Americans are not.
- WalterBright 2y ago
  I read my mortgage papers carefully before signing. I made sure there was no early payoff penalty. This worked out fine when interest rates dropped and I refi'd. I've refi'd many times whenever the interest rate dips :-/
  - voisin 2y ago
    In Canada? Who was your lender? I did an exhaustive (I thought!) search when I last got a mortgage and could not find a fixed rate option that did not have a large prepayment penalty.
    - WalterBright 2y ago
      In the US. I don't know much of anything about Canada.
- ckcheng 2y ago
  > In Canada ... all of our mortgages are full recourse. Except in Saskatchewan and Alberta [1]. [1]: https://financialpost.com/personal-finance/mortgages-real-estate/you-can-walk-away-from-your-mortgage-if-you-live-in-alberta-but-should-you https://financialpost.com/personal-finance/mortgages-real-es...
  - voisin 2y ago
    Wow thanks for sharing. I had no idea.
- throwaway2037 2y ago
  You should ask your parliament to create the equivalent of Fannie Mae and Freddie Mac in your country. Gov't backed and buys loans from retail/commercial banks under strict guidelines. This helps to create a huge fixed rate mortgage market in the United States. I agree: Fixed rate mortgages are terrific for increasing home ownership. Plus, it moves the interest rate risk from retail people (less sophisticated) to institutions (banks, etc.) (more sophisticated).

voisin 2y ago

> A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house. This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to do so, but all of our mortgages are full recourse. I can’t believe how much worse this seems, on a societal level, than the US.

anon7725 2y ago
A couple of other good points vs Canada: most fixed-rate US mortgages don’t have a prepayment penalty, and many offer the option to “recast”, which means you can make a lump-sum payment and reamortize your loan while keeping the rate and end date the same. This has the effect of lowering your monthly payment and is often used as an alternative to refinancing if you’re buying and selling a home in sequence.
- voisin 2y ago
  Thanks for this. I’d never heard of this option and once again I am shocked at how much better Americans have it than Canadians when it comes to mortgages.
- tzoompy 2y ago
  In Canada, it's actually worse than stated. You do have a prepayment penalty as long as current interest rates are lower than your loan's interest rate. Now that interest rates are higher than they were a couple of years ago, TD Canada Trust waived all my prepayment penalties. They were happy to let me prepay as much as I wanted. It's incredible how one-sided the Canadian system is. Prepayment is acceptable as long as the bank benefits. Prepayment is not ok when the person taking out the loan benefits.
intuitionist 2y ago
I mean, manufacturing 30-year fixed rate fully pre-payable non-recourse mortgages does not happen in a free market. It takes a lot of government subsidies to make that happen—in particular the government assumes the credit risk on something like 85% of US mortgages. The United States government is very into the idea of spending its resources to subsidize homeownership. Canada has made different policy decisions, like single-payer healthcare. If the societal choice was between universal healthcare and extremely borrower-friendly mortgages (and I don’t think that it really works that way, at least not in such stark terms) I’m not sure I’d pick the mortgages.
- bluGill 2y ago
  It can happen. There is risk, but the reward is very high and so it is worth it. However the government often will not allow you to get the full reward and so while the numbers work out for everhone in a free market it doesn't happen. adjustable rate mortgages in the us are lower interest rate. Often in the us they are a better deal - we are just looking at one case where everyone in a fixed rate two years ago is better off than those with adjustable rates.
- voisin 2y ago
  > It takes a lot of government subsidies to make that happen No doubt, but the upside is a populace not especially at risk to interest rates which is absolutely crushing and systemically risky currently. > in particular the government assumes the credit risk on something like 85% of US mortgages. In Canada, CMHC does something similar so I am not sure we get away with anything special that the Americans are not.
WalterBright 2y ago
I read my mortgage papers carefully before signing. I made sure there was no early payoff penalty. This worked out fine when interest rates dropped and I refi'd. I've refi'd many times whenever the interest rate dips :-/
- voisin 2y ago
  In Canada? Who was your lender? I did an exhaustive (I thought!) search when I last got a mortgage and could not find a fixed rate option that did not have a large prepayment penalty.
  - WalterBright 2y ago
    In the US. I don't know much of anything about Canada.
ckcheng 2y ago
> In Canada ... all of our mortgages are full recourse. Except in Saskatchewan and Alberta [1]. [1]: https://financialpost.com/personal-finance/mortgages-real-estate/you-can-walk-away-from-your-mortgage-if-you-live-in-alberta-but-should-you https://financialpost.com/personal-finance/mortgages-real-es...
- voisin 2y ago
  Wow thanks for sharing. I had no idea.
throwaway2037 2y ago
You should ask your parliament to create the equivalent of Fannie Mae and Freddie Mac in your country. Gov't backed and buys loans from retail/commercial banks under strict guidelines. This helps to create a huge fixed rate mortgage market in the United States. I agree: Fixed rate mortgages are terrific for increasing home ownership. Plus, it moves the interest rate risk from retail people (less sophisticated) to institutions (banks, etc.) (more sophisticated).