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Comment by jacquesm | Hacker News Reader

That and real estate prices. People borrow insane amounts of money right now because they can due to the ridiculously low (in some places negative!) interest rates. Once those go up to reasonable levels (say, 5...10 % annually) suddenly they won't be able to pay for their house anymore and it's 2008 all over again.

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When getting a mortgage, at least on my side of the pond, you get the option to fix the interest. I've set mine to 30 years fixed (the duration of the mortgage), because a few years ago it already seemed like the rates were bottoming out. I was wrong, but I don't regret fixing my mortgage interest rate.

A more pressing matter is that people are no longer able to afford a house, especially if they're young / early in their career.

Same here. I would never have borrowed money on a variable interest rate.

I bought a home in 1998 with a variable-rate mortgage.

The interest rate was 7.5% and my friends told me I was foolish not to pay 9.0% for a 30-year fixed rate mortgage. They calculated nightmare scenarios if rates doubled or tripled while theirs held constant.

Every year since then, my interest rate reset downward until it hit the lower limit of 2%. Even though my required payment decreased, I kept paying the original payment amount and paid off the loan 10 years early.

My friends paid hundreds of thousands in additional interest over the years for the peace of mind of a fixed rate.

PSA: 2021 to 2031 might be different than 1998 to 2018.

Yes, but you can always refinance a fixed rate mortgage into a new fixed rate mortgage at a lower rate. You have to do it intentionally, and it’s optional, so you only do it when the rate moves in your favor. Variable rate mortgages change automatically, which means they can move against you.

Sure. When you gamble, sometimes you win. I'd still rather not try though.

Isn't deciding to pay a higher fixed rate also a gamble where sometimes you win and sometimes you lose?

That was then. Today you can get a fixed rate in the high 2% range. If rates rise as expected, it will be those who chose the fixed rates who will be OK, and those who chose variable will be screwed.

Where do you live that you can fix a mortgage rate for 30 years? This is impossible (or at least, highly rare) in Australia (you can get a fixed rate but only for up to ~5 years).

In the USA it’s pretty standard. The 30 year fixed rate mortgage is probably the most popular by far. And then you refinance it over time as rates fall.

Adjustable rate mortgages exist too but got a lot of people in trouble in 2008. I think a lot of them are only allowed to adjust by a certain percentage regardless of interest rates each year they’re eligible to.

It also keeps the minimum payment lowish - I went for a 30-year fixed, refinanced it once when rates went crazy low, and paid roughly double what I needed to (apart from months when I couldn’t). It paid off in ~13 years. I could have got a 15-year fixed on slightly lower rates, but the flexibility was worth the rate delta for me.

And this isn't a recent trend, either. The 30 year fixed rate mortgage has been pretty standard since at least the 1980s.

It's standard in the USA because of government policy. (Mainly Fannie Mae and Freddy Mac). 30 year fixed rate wouldn't exist in the free market.

https://www.marketplace.org/2018/10/31/why-do-we-have-30-yea...

You can get 10-year fixed rates in Canada:

* https://www.ratespy.com/best-mortgage-rates/10-year/fixed

* https://www.ratehub.ca/best-mortgage-rates/10-year/fixed

For down payments <20% mortgage insurance is needed (usually from the federal government subsidiary, like Fannie/Freddie), but not for larger down payments: that's all free market.

Some institutions offer 18- and 25-year terms.

A fixed rate is just a derivative product (an Interest Rate Swap) attached to the mortgage, and people are happy to buy and sell them, why would you say it would not exist in a free market?

Case in point: there is no such government policy in Spain, yet most banks happily offer fixed rates.

You just need to hedge the fixed mortgage you are selling and add some interest to make profit.

30 year fixed rate is quite common in Chile, and the mortgage and housing industry is fully deregulated here

In the USA it's apparently common, but seems unusual everywhere else. In the UK, 5 years is the maximum and 2 years is more common. People rely on rolling over the mortgage to a new fixed-rate offer, but that can be problematic as it's not guaranteed that good offers will be available after the fixed term, and as many found out in 2009, it's not guaranteed that fixed rate mortgages will be available at all. Also it costs a ton of money and time to roll over the mortgage because you're essentially buying the house all over again.

"In the USA it's apparently common, but seems unusual everywhere else."

It's not just common in the US, it is the de facto standard across almost all mortgage types and sizes. Even weird, non-conforming properties with "jumbo" sized loans can get fixed at 30 years.

Also, I will point out that in both Switzerland and the Nordic Countries, 40 and 50 year mortgages are now in very common use:

"Repayment periods in Switzerland can be incredibly long, with deals lasting between 50 and 100 years being relatively common."[1]

"Swedish regulators calculated in 2013 that the average mortgage term was around 140 years."[2]

In fact, now that I think about it, I am surprised that the US culture of "financial innovation" has not produced more standardized long-duration mortgages ... I do not know anyone, for instance, with a 40-year term ...

[1] https://www.expatica.com/ch/housing/buying/your-guide-to-swi...

[2] https://www.thelocal.se/20160324/sweden-limits-mortgage-loan...

You can get 10-year fixed in the UK {1], and even that limit is surprising to me. I thought 20-year fixed was available (pretty sure it used to be) but apparently no more...

[1] https://moneyfacts.co.uk/mortgages/10-year-fixed-rate/

You can get 10-year fixed rates in Canada:

* https://www.ratespy.com/best-mortgage-rates/10-year/fixed

* https://www.ratehub.ca/best-mortgage-rates/10-year/fixed

It is no problem is Germany but expensive. I personally had not problem to fix it for 10 years and decide then.

In Israel it's fairly standard. In fact, you're only allowed a third of the mortgage to _not_ be fixed.

In the Netherlands 10 years was the norm, now, judging from people I know, it's 20 years.

Since 2008, from everything I've seen lenders are much more restrained about creditworthiness, so there are probably far fewer people buying houses that are only marginally affordable initially, with variable rates, and an interest-only initial period or other pre-programmed increase in basic payments. So I don't think the risk of that kind is as great as going into 2008.

But, yes, buying with variable rate mortgages when interest is at historic lows rather than paying a little bit extra initially for fixed rates is risky, and on a society wide scale that risk is going to materialize at some level.

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