Fta: "It’s a one-sided bet,” said John Y. Campbell, a Harvard economist who has argued that the 30-year mortgage contributes to inequality. “If inflation goes way up, the lenders lose and the borrowers win. Whereas if inflation goes down, the borrower just refinances.”
Yeah won’t someone think of those poor lenders who make…let’s check my notes…130% on their investment or more over the 30 years and it is amortized so you pay the most interest up front in the first decade? Even if you refi you still start that interest over and pay thousands in closing costs to the bank on top of it.
Waahhhhhh Cry me a fucking river.
Lmfao The reason rate are locked is obvious.
Why should I lose my home because interest rates changed and your mtg goes up 40%?That’s what happens with 5 -15 year loan terms.
A buddy in the UK is facing this now. Because he can’t get a 30 year loan and can’t pay off his house he’s forced to restrcture and his payment is going from $800 to $1300.Man look at all that inequality defeated just like the article says it would be…not.
And the lenders don’t lose at all! They borrow the money at current rates, and immediately package it off to a mortgage backed security and sell it within weeks of closing. The only potential “loser” is the investor that buys the security, but that’s just the nature of investing.
The only potential “loser” is the investor that buys the [mortgaged backed security], but that’s just the nature of investing.
You say that, but we don’t have to allow that kind of predatory shit to exist.
That’s actually a mechanism to inject more liquidity to the market. And therefore allow more loans, for more people.
The opposite would mean rates would for sure increase because there would be very limited pool of capital to be loaned.
You say that as if we didn’t have mortgages at reasonable rates back in the day before mortgage-backed securities were invented.
I didn’t quite say that. I said it would be limited from now on.
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Yeh this is just thinly veiled propaganda.
Came here to say the same thing. What a bullshit article.
Don’t forget that your buddy has enjoyed years of super cheap mortgage unseen in the US.
Ah yes, let’s see if we can’t pit groups of normal home buyers against each other, while ignoring the institutional investors who are buying up homes to rent out (short or long term). We can also ignore the fucked up trend of building bigger, more expensive housing on lots just barely bigger than the house itself, with the near lack of things like condos, duplexes and multiplexes. Yes, I’ll openly admit I would never again live in a place where I share a wall with someone. But, when I was younger and costs mattered more, cheaper, higher density housing made more sense.
Exactly. You want people to be able to afford to buy homes?
Fix. The. Zoning. Code.
Kick NIMBYs where it counts and upzone at the state level. There’s absolutely no reason a small number of NIMBY locals should be able to hold an entire state (or country) hostage by refusing to zone for anything other than single family homes.
Counterpoint: I live in Florida and the less that happens at the state level, the better. DeSantis and the FL GOP are doing their best to consolidate power in Tallahassee since they have a supermajority there and they will happily fuck over just about anyone just to show them who’s boss.
The last thing I need is the assholes in Talla having more power over my neighborhood.
These things are less about putting on state control and more about removing local control from the picture. The problems are always local ones with the small NIMBY crowds. CA just overrode all counties and cities and imposed a rezoning code. The law allows for those communities to play along and adjust their practices, but also allows the state to step in when they refuse, which has happened in some areas.
I live in BC in Canada and they’re basically outlawing single family density housing. All lots here will be encouraged to go duplex to small condo building, or at least have a suite, to try to address the housing shortage.
I find it interesting that you state that you wouldn’t take the suggestions you made due to potential shared walls. You are right on those points, though.
Ya, I’ve done my time living in an apartment with shitty sound isolation. It turns out that there was never a truer statement made than, “hell is other people”. And, while I am sure that some apartments exist, somewhere that don’t completely suck, every apartment I have lived in did suck and I’m not going to willingly be in that position again. Ya’ll have fun in your cities, I’ll live out in the sticks, thanks.
I think the thing is to separate older apartment building with newer apartment complexes. The former tended to be built to a higher standard while the latter is built quickly and on the cheap.
If we just put some sound insulation between those cardboard walls and floors it’d be fine. I don’t need to know when my neighbor is having sex.
You probably were in cheaply-built housing previously.
Yes. That’s generally what broke 20-somethings can afford.
What a terrible take. It has nothing to do with being broke. All housing is expensive.
Yeah, the last time the lenders pushed Adjustible Rate Mortgages as a way for borrowers to be able to afford a home with cheap monthly payments it turned out fucking great! Lots of people were able to buy the house of their dreams and the economy flourished for the next decade!
Oh no it didnt. A shit ton of people lost their homes and the banks and mortgage industry pulled a fast one, lied, and hid the evidence when found out. Oh and the economy took a shit!
C’mon it worked out for the banks though!! The ones that are still around, anyway…
I took a combo loan, one 10 year ARM, and a 20 year fixed. I know I probably won’t get a better deal when my rates inevitably increase at year 10, but saving almost 1.5 percent over ten years is nice. Hoping to have it paid off by year 15, so 5 years at a higher rate should be okay for now. Short-term arms are crazy.
If your in the US you should have refinanced in 2021 if it was an option. It’s cheaper for me to pay the minimum on my home loan than it is to pay it off. Inflation is significantly more than my mortgage interest rate.
Hopefully it works out for you, but I’d be legit terrified of the moment that loan becomes adjustable rate.
And we still have 8.8 years roughly, so we’re trying to pay what we can before we reach that point. It should give us time. Our ARM and fixed arw actually for a 20 year pay off. We could refinance later, but goal is to have the fixed paid off and 75 percent of the ARM paid off at year ten, then that tives us roughly 5 years for the rest.
I purchased in 2022 right before the major increases happened, well, in the middle. I’m in at 4.25.
imagine
Something is good for consumers so it must be a problem. Fucking economists.
It’s not good for the consumers, that’s the issue.
Hmm, like most things, depends on the consumer. I bought my house in 2014. It’s been working out great for me at the moment. Love my $700/month mortgage. It’s s cheaper than anything I could rent in my area right now. The people having an issue right now are the banks and the folks on the lower end of the economic ladder. I can’t say I’m too concerned about the problems that the banks are having. For everyone else, I feel for them. They just need to hang on, keep paying attention, and be patient. Things will get better.
This entire article is about how it favors consumers vs mortgages in other countries.
No, the article is about how our fucks those, who want to buy a house, but can’t afford it anymore.
No, it is about how consumers in the US have access to a 30 year fixed mortgage and the ability to refinance when interest rates lower which is not available anywhere else. This is a different issue than the current housing market prices which are driven by scarcity due to institutions buying homes. The author is trying to conflate the two to advocate for screwing the consumer and it seems to have worked on at least one reader.
So whats your solution, fuck everyone with higher rates and force people that have lived in the same home for many many years to sell due to external factors outside of their control?
Well, I live in the UK right now and what people are doing here is that they live in a house for 5-10 years and then swap it to a bigger one. You will get a lot of equity in 5-10 years, so you can remortgage, get a better house and pay less. Or they move to cheaper areas and buy mansions for the price of a flat in London.
And even if you don’t want to move, you can remortgage and pay less simply because your debt is much smaller now. Also before current rate rises people with high equity would remortgage at super low %, take cash and invest it. 10 years later you’re rich AF doing fuck all.
I banked enough cash WFH to buy a house in October of '21 and got a 3.25% fixed. There are 28 years remaining with a $2,000 a month monthly payment.
Why would I give that up? What’s the incentive to take a higher interest rate and a higher monthly payment? There really isn’t one.
The article isn’t suggesting that home owners should shoot themselves in the foot by giving up their great fixed rates. They are saying that the incentives are backwards and the system is unfair.
People are less likely to move right now and those who need to buy right now are punished for it. A system that was more fair would spread the pain of high inflation to everyone and even make combating runaway inflation easier. At the moment, the high rates have basically no impact on those (like you and me) who were lucky enough to buy or refi in 2021.
I’m not really sure why people took exception with your comment. It’s very strange. I actually think that the first person didn’t understand and downvoted, then monkeys kept clicking buttons.
Wah wah wah. Yeah it sucks for some people that need to buy right now. I’m in the process of it and the first few years are gonna suck because of the interest. No reason to cry about someone else getting in earlier with a lower rate.
Rates go up and down. When they do, people that bought at high rates refinance down to a lower rate.
Dude, I have no idea what gave you the impression that I was confused about any of what you just said.
The commenter above me struggled to understand the article and thought that the author was trying to convince individuals to abandon their existing mortgages or to stop refinancing them when lower rates justify the cost of doing so.
And they almost completely ignore the elephant in the room. Nobody has been building new homes!
Nobody has been building new homes!
Do you live in the US? People have been flocking out of the cities to the rural parts of the country because of WFH. I work in general residential contracting in a town that was 20,000 citizens five years ago and is now over 100,000, and we’ve had to turn away probably 50 potential clients this year alone. We’re booked under contract for the next four years.
People are absolutely buying new homes, but not having to make daily commutes to the downtown office is giving them the ability to build in historically cheaper parts of the country.
New home construction in the US was massively reduced back in the 2008 GFC and has remained depressed ever since. It’s hyperbolic to say nobody is building, but there’s been fewer new homes being added for awhile now and that’s one of the central problems in the current housing affordability crisis.
And very few of them are under 350k That’s the real issue
Yes. Nobody is building starter homes. Even the 50+ communities going up have 4 bedrooms and 2200 sq ft.
We live in a rural ish area 2-3 hours from DC and homes are going up like crazy. In the last 2 years there have been 3 or 4 100+ home subdivisions built. As I understand it though they are almost exclusively rentals owned by the builder themselves.
And all of the homes are 4 bed, 2 bath or bigger? Nothing in the 2 bed, 1 bath range that people should be starting with.
I’ve seen anywhere from 2 bed 1 bath to 4 bed 3 bath
That sounds horrible for that city. A five times population increase in only 5 years seems like something that no city would be able to manage well.
It sounds like a Ponzi scheme, mainly because it is one.
Sure do! Been living in Alabama for almost 20 years at this point. Grew up in Minnesota. While I appreciate how slammed your profession is right now, you’re not really having an much of an effect on the market just yet. And none at all at the lower end of the market. I have seen a lot of really nice builds at price points I can’t afford though.
The mediam household income in Alabama is $54,943 and the median individual income is $30,458 according to the US Census Bureau. My wife and I combined make roughly $110k with myself making $70k. My wife is a mental health therapist with a master’s degree and I drive a truck. We’re lucky, but a lot of folks ain’t.
Growing up I was told, when your buying a house, your budget should be no more 2 times 1 persons (the husband’s) salary. Back in 2005 Dave Ramsey said no more than 4 times the household income. I did a bit of digging using both guides to see just what folks could afford in our local property market right now at the most common wages in the area, and the pickings are pretty slim until you get to the wages common for skilled trades. Given how frequently my wife, or I have been out of work, I decided use only a single income in my searches.
Here’s a paste dump of what I found:
$7.50/hr @ 40hr/Wk = $15,600/yr
$16.00/hr @40hr/wk = $33,280/yr
$22.00/hr @ 40hr/Wk = $45,760/yr
Don’t worry, we’re actually building a lot of them out here in the totally-long-term-sustainable desert of Phoenix area.
Plumbing not included
There’s plumbing. Just no water.
Didn’t Phoenix either put (or look at putting) a moratorium on new building or growing the city limits? There’s just no water out there and it’s only going to get worse in the future.
Nobody’s allowed to build new homes (except way out in the exurbs) because the zoning code is wrong.
Sort of true. We bought our house in 2008 and got a 3-something% API fixed-rate mortgage. We hate this town and we know where we want to move, but we can’t afford a higher rate mortgage, which we would have anywhere we moved. My wife has amazing credit and the house is in her name only (my credit is shit), so she’d still get a decent loan, but fixed-rate and anywhere near 3%? Probably not anymore.
My wife totalled my car 3 weeks ago so I’ve been trying to secure a temporary car loan.
Even with my high credit score and a credit union, I’m still seeing 7 to 8% On a car loan (!)
Any loans right now are crazy. I just hope our cars are okay for the foreseeable future.
My old car blew its head gasket (thanks Stellantis) so we also had no choice. Check leases. It was the same price to lease brand new as it was for us to buy a certified pre-owned car and the rate was better because it was a new car. We also have excellent credit.
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Australia here and you get like 3 years fixed if you’re lucky.
Here, enter into this lifetime contract; after three years the terms change to whatever the hell I say they are, and you say sir yes sir or I destroy you.
Canada’s the same to a max of 5 yrs. You can get longer ones but the rates suck
My understanding is because it’s Canadian law that after 5 years banks can no longer charge you for early cancellation. In the states they can for the entire duration of the mortgage. Which, benefits the banks when rates go up, the buyer when rates go down (and the opposite in the states)
I’m pretty sure mortgages with early payoff fees are not the norm here in the US.
They are not.
Pretty sure those were outlawed after the 2008 recession.
Netherlands here: I had no idea the US has 30 year fixed rates. That is insane. Our housing market is fucked and rates are only locked for 10 to 15 years these days.
It’s awesome knowing my payment won’t change aside from maybe a bit more each year due to any potential tax increase!
How do you not panic realizing interest rates are rocketing and you’ll be priced out of your own home and you can see it coming and there’s nothing you can do???
What a shit system that must feel like.
It’s crazy in the UK too, where 3-5 year fixes are common. I’ve know folk who at renewal next year will be paying £500-£800 extra, each month.
My biggest impact has been gas and elec, which maybe added that amount to my annual bill. I can’t imagine the stress.
Timing worked really well for us. Finished a 5 year term just before the larger rate rises. Broker was telling me to ride it out with a tracker and the inflation/interest rises will be short lived.
Nah, got a 10 year fixed rate at a rate that is around half the current BOE base. He just couldn’t understand that we’re fine with 10 years at a rate that might be even double the rate banks offer in say 2-3 years. Because we can afford it fine. The risk is low with the fixed rate, whereas the risk of a tracker/standard mortgage almost has to upper limit.
Also, if the rate actually came down to half our fixed rate it would potentially be worth the penalty to exit early. It’s still kinda win/win in the UK, but timing can screw you over.
It just feels like a huge gamble. I went the tracker route between 2012 and 2018 only because I didn’t want the overpayment restrictions imposed by fixed deals.
Luckily it worked out, had I gone for a fixed rate I’d still be slowly paying it off, at a higher rate.
For every person who did well, there’s someone else who didn’t, mostly through unlucky timing.
How much did you want to overpay? Pretty sure we’re allowed to do something like 10% of remaining balance per year. Which, so far at least has been fine.
And yes, this is generally how the banks work the risks I suspect. They will lose out on some deals, but gain hugely from others. For us, after 10 years of fixed payments there won’t be much left (even less if kitchen appliances stop failing and giving us ways to not put money onto the mortgage)
I wanted to pay it down while the rates were low, 10% would’ve started off ok, but obviously the lower it got, the less that was. Makes sense from the bank’s pov, seems a fair trade-off for a fix.
Part of your house is paid off in that time. All mortgages are structured so that in 30 years they are paid in full. So if in 10 or 15 years you need to refinance somehow it will be cheaper than financing 100% of a residence.
That doesn’t mean shit if your rate goes from 3% to 8 % and your payment doubles.
Dit he math. Even if u buy a 300000 house and pay off a full third in 3 years which is absurd.
What’s 200k at 3% vs 200k at 8%?
Go ahead, I’ll wait.
Not sure why the aggression…
aside from maybe a bit more each year due to any potential tax increase!
Also insurance increases.
Incidentally, my taxes and insurance are more than half of my total mortgage payment, and are responsible for it increasing something like 30% over a decade.
Imagine being 10 or 20 years into your mortgage and suddenly you can’t afford your payments anymore due to a rate increase. You have to sell the house and then try to find another one at the inflated rate and then start back from square one.
You’d have to be wildly irresponsible to have that happen. Theoretically you’ve paid off well over half of your house after 15 years.
Canadian here. It’s 5 years for us!
You can also get 15 year loans with fixed rates here in the states. They’re usually .1% better on the interest rate compared to a 30 year, so for most people it doesn’t make sense to go with a 15 year when you can pay substantially less on a 30. Plus homes here are very much a very safe investment. When you own the home you only pay property tax generally after you pay the mortgage and in states like California that can mean an incredibly cheap place to live once paid (I’m talking 100s of dollars a year, though that will go up over time).
People bitch about housing here in the states, and it’s definitely not as good as it once was, but it’s also not as bad as many other places. I travel to Canada regularly and their shit is fucked. 😅
When you own the home you only pay property tax generally after you pay the mortgage and in states like California that can mean an incredibly cheap place to live once paid (I’m talking 100s of dollars a year, though that will go up over time).
This is actually a significant cause of California’s housing crisis.
Are you saying that people living in the homes that they own are causing the housing crisis? Or what?
Yes, absolutely, in California. Generally, everywhere too but that’s a much broader topic.
In California specifically, property tax costs are based on the grandfathered price of the house, which means that there are people who inherited homes bought for $30k 80 years ago and still pay that amount of property tax.
This traps both the taxable value of the house and the land itself and keeps it from being developed, when normally someone might be priced out by the taxes a $10 million home would generally cost.
In the State of California, real property is reassessed at market value if it is sold or transferred and property taxes can sometimes increase dramatically as a result. However, if the sale or transfer is between parents and their children, under limited circumstances, the property will not be reassessed if certain conditions are met and the proper application is timely filed.
https://www.sfassessor.org/tax-savings/exclusions/reappraisal-exclusion-grandparent-grandchild
It’s just one of many reasons (which is why housing costs are insane everywhere), but it is a significant contributor in California.
Generally, the law being written to benefit homeowners is the single greatest cause of our housing crisis, and this is one element of how those laws are crafted toward existing homeowners.
Consider: if homes are “nest eggs” that always go up in value, what is happening to the price of homes, all the time?
Kind of yeah. Prop 13 definitely is part of the issue.
Well that’s ridiculous. What do you expect people do to, just give up the house they live in for someone else who needs a house? This isn’t Palestine, it’s the USA and we are well within our rights to keep living in the homes we paid for.
Love the fact you ignored maintenance cost, incidental repairs, house insurance, and all that. Then you proceeded to sneak in that bullshit at the end.
It’s still quite a bit better than renting. Rents around here cost more than many mortgages.
Don’t forget maintenance!
Maintenance is a thing but it’s also not “that” frequent, distributed over the course of multiple years, where something of note probably only occurs during 1 or 2, you save. There are totally scenarios where renting makes sense and there can be financial barriers to entry on onwership, but as a long term gambit, if you can afford it, owning wins.
Home insurance isn’t required in all states. Usually it is the lender that requires. Of course it’s still a good idea to have it.
Most people can’t afford the real cost of a home and instead end up paying something like 2.5 times the value in interest over those 30 years. Those who can will always go for a 15 year loan and try to pay it off somewhere in the 10 - 12 year range, the rest just pay interest for decades.
In Canada the typical amortization is 25, but you renew at market rates every 3-5 years.
Some people are gonna be fucked raw next renewal period after this rate run but the government instituted a stress test rate you would have to meet to qualify for mortgage which should help keep things stable. Should.
There is a little * here though. It is relatively easy (generally) to make sure your mortgage does not have a penalty for early payment. Yeah, you may be on a 30 year plan, but nothing is stopping you from paying it in 10 to 15 years and saving a crap ton on the interest you aren’t going to pay.
You can choose to have a lower term mortgage if you want to.
You guys have it so lucky with your 30 year fixed rate mortgages. Here in Australia you can fix yours for maybe 5 years max, but you get a significantly higher rate than if you do variable. My interest rate on my current mortgage started at 1.9% fixed for 2 years. Now it’s 6.7%, and likely to go even higher cause our economy is fucked with inflation through the roof and literally the only thing the government does is go “yo banking people are you gonna raise them rates to take care of this?”.
I’m now paying $40k more in repayments a year than I was initially, all in interest.
American mortgages are scams. $100k house at 3% interest over 30 years turns that $100k home into $189k giving the loan institution a free $89k all for commoditizing shelter.
Ah yes it’s so much worse than other countries where that interest is 3%, oh wait no now it’s 7%, oh never mind it’s 5% now, oh hold on now it’s 12%.
A rate locked for the entire term of the mortgage is immensely better for the buyer than a rate that can change every 5 or so years.
$100k house
Oh, you sweet summer child…
Also, please come back when you understand opportunity cost. I will GLADLY pay anyone a 3% rate to front any amount of money I already have.
I used that number for simplicity’s sake since so… so many of you have a hard time putting large numbers into understandable chunks.
I do understand opportunity cost. My gripe is applying it to shelter to begin with. The whole notion of using shelter as a means for financial gain is absurd. That’s the reason 2008 happened and why housing is unobtainable now.
I’m glad you have $100k on hand. Most don’t.
No shit…lol they have no clue how interest works
Oh is my math wrong?
Payment = rate*(loan amount)/(1-(1+rate)^(-number of payments))
Rate =.03/12 = 0.0025
Payment = 0.0025*100000/(1-1.0025^(-360)) Payment = $421.60
Therefore, $151776 will be paid in total, or $51776 in interest.
