A 30-Year Trap: The Problem With America’s Weird Mortgages
A 30-Year Trap: The Problem With America’s Weird Mortgages
One big reason the U.S. housing market is broken: Owners don’t want to give up their cushy old loans.
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.
113And 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.
32Yeh this is just thinly veiled propaganda.
13Came here to say the same thing. What a bullshit article.
6Don't forget that your buddy has enjoyed years of super cheap mortgage unseen in the US.
-1
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.
65Exactly. You want people to be able to afford to buy homes?
Fix. The. Zoning. Code.
18I 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.
1I 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.
1Ya, 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.
1
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!
63C'mon it worked out for the banks though!! The ones that are still around, anyway....
4I 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.
3If 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.
5
imagine
2
Something is good for consumers so it must be a problem. Fucking economists.
33It's not good for the consumers, that's the issue.
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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.
26The 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.
1I'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.
2Wah 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.
-2
And they almost completely ignore the elephant in the room. Nobody has been building new homes!
22Nobody 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.
28New 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.
18Sure 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
4
Don't worry, we're actually building a lot of them out here in the totally-long-term-sustainable desert of Phoenix area.
12Nobody's allowed to build new homes (except way out in the exurbs) because the zoning code is wrong.
2
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.
17My 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 (!)
8Any loans right now are crazy. I just hope our cars are okay for the foreseeable future.
5My 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.
14Canada'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)
5
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.
6It'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.
14aside 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.
2
Canadian here. It's 5 years for us!
3Most 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.
3In 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.
0
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. 😅
3When 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.
6
You can choose to have a lower term mortgage if you want to.
2
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.
-8Ah 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.
6$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.
2I 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.
3