Hacker News Reader

Comment by lrem | Hacker News Reader

Imagine this was done quickly:

1: everyone who's got a borderline repayable mortgage to get anything in the overheated market and hasn't increased earnings by some 20-30% since then goes bust. This creates a wave of increased supply.

2: everyone's willing to buy gets way less loan amount for same repayments. This severely reduces demand at current prices.

3: 1+2 force prices down, meaning some people end up owning banks more than their house is worth. In the US the banks are in trouble, as people start walking away from their mortgages. In the EU such people are stuck with negative equity.

Such a scenario is outright disastrous, so no sane government will try it. So, the only way out of low rates is to increase this gradually enough to not create visible waves. Which means all 3 happen, but at a magnitude where most people do not notice.

View on HN

Wait, isn't your number 1 the exact opposite, unless you got a variable rate mortgage? If you got a fixed rate mortgage, inflation is your friend, since inflation will decrease your debt.

Inflation won’t do anything to your fixed-rate debt, but hopefully it will increase your wages to make the debt easier to pay.

It will also increase the value of your house. Fix rate debt is definetly your friend.

Fixed rate debt may increase the value of your house if interest rates go up and your mortgage is assumable.

Almost no US mortgage products are assumable.

All US government home loan programs are assumable (FHA, VA, and USDA).

This Quora answer indicates that FHA loans alone alone make up a majority of new home loans in the US: https://www.quora.com/What-percentage-of-US-home-loans-are-f...

I should've said conventional loan products. Thank you for pointing out my mistake.

While they make up the moajority of new home loans, they only make up ~15% ot total mortgage originations, leaving 85% of homes being mortgaged with conventional mortgages.

I disagree. If inflation is very high, the fed (aka BOC for me) will increase the interest rate, and by correlation, a higher mortgage rate ensues. Less people qualifying for mortgages attacks the demand side of the market, lowering the prices of homes.

Most US mortgages have a fixed rate for 20 - 30 years with no balance further due at the end.

I meant the inflation adjusted value of your debt.

In the UK mortgages aren't fixed for the lifetime of the mortgage. Not sure about the rest of the EU. Ours are like 3/4/5 year fixed rate then revert to a bad variable rate, at which point you get a new mortgage.

In Germany, 10 year fixed mortgages are common, though shorter terms get you lower interest.

In Sweden, lots of mortgages are adjusted every three months, and I would assume (though not certain) that a majority of mortgages are fixed on no more than two-three years.

German banks have always been extremely conservative when it comes to mortgages. It’s hard to even get a mortgage when you don’t have a secure job and bring a substantial down payment (like 20-30% of the house/apartment total).

I've heard of fixed rate mortgages up to 15 years, at interest rates as low as 1.6%-1.7% if you have a secure job and an established relationship with a landesbank.

For maybe 5 years, then it’ll come to hurt you when you have to re-sign at a new rate.

For fixed rate, you'll get hit when you renew at the end of the term (typically 5y).

Say you've got a 5 year fixed mortgage, at 3.49%. You buy a new home, taking a $500k mortgage at 25y amortization. That's $2494/mo. At the end of the mortgage, you'll have $431,321 remaining on the loan.

Renewing, if you find the fixed-rate amount is up two points to 5.49%, your 20 remaining years now costs you $2950/mo. If you're taking a mortgage right at the edge of your expense threshold, that 20% jump in monthly payments can hurt.

The alternative is another 25y amortization for $2630/mo (and hey, inflation means you should be clear to $2730/mo to match your first mortgage) but that's just prolonging the life of the loan.

That's not a "fixed-rate" mortgage (at least in the U.S.), because fixed-rate mortgages set a fixed interest rate until the entire mortgage principal is paid down to $0.

It seems like you're describing a https://en.wikipedia.org/wiki/Balloon_payment_mortgage, where you pay a fixed (or perhaps variable?) rate for a few years, but then need to make a huge balloon payment on that mortgage at the end of the term (usually done by arranging a separate mortgage).

I think people are getting confused.

Fixed rate means the interest rate doesn't change over the term of the loan. Compare this to variable or floating rates that can change.

The difference for the US is that the fixed rates are for a 30 year term. Countries like Canada and Australia have 10 year terms as a max, with most people electing for something shorter as the rate goes down.

In the US your rate might never change. In other countries it changes when you refinance at the end of the term.

I'm sure this is US-centric, but the standard fixed rate products for primary-residence home loans here are 30yr and 15yr.

Guys, don't downvote him. Many parts of the world do it like that- your 30yr mortgage is really a series of 5yr balloon amortized for a 30 year period. They don't have the option of a true 30yr fixed.

Correct. And I know for at least Canada there are circumstances where you can be denied a renewal if you don't meet income requirements.

Let's say you refinance from 2% to 6% and your mortgage payment exceed loan to income ratios, you might have to sell your home.

In your case 1, this refers to people who have variable rate mortgages, correct? What about people who have fixed rates?

They're eternally thankful for living in a country where you can get a fixed rate for more than 5 years.

Reply on news.ycombinator.com