Interest rates can rise, which would increase the mortgage. Also, buyer's income could fall at some point in the next 30 years.
Also here, “fixed” means that the rate is subject to change at fixed intervals as opposed to whenever the central bank changes the prevailing interest rate.
In the UK the norm seems to be 2 or 5 years. There are 10 years too, and 3 or 7, but I haven't see a 15 year fix.
I'm looking at a new mortgage and trying to decide between a 2 year mortgage (in 2 years I'll have a lower LTV so better rates) and a 10 year (which is slightly more expensive in the short term - 5% extra or so - but will be far more expensive in the long term, unless interest rates go up).
So it's up to me to hedge based on where I think interest rates will be. Might split the difference and go for 5 years.
In the meantime in Italy you can get extremely low 20-30 year fixed rate mortgages.
65% LTV will give you a 1.95% for 10 years
90% LTV 3.99% for 10 years
60% LTV for 1.44% for 2 years
90% LTV 3.09% for 2 years
85% LTV 2.59% for 2 years
Alas I no longer have my baserate + 0.25% 25 year interest only tracker mortgage
Options for a 250k house with a 90% (225k) mortgage at 3.09% for 25 years
Fixed for 2 years, you pay £1,077.54 a month.
By year 2 you're down to £212,683, and assuming no crash in prices, but no gain either, you can remortgage to an 85% rate (for the sake of £200 of overpayments - or £8.33 a month)
If rates don't increase in that time, you're then on a 23 year 85% mortgage, fixed for 2.59% for 2 years, your monthly payment drops to £1,022.69
By year 4 you're at £198,621 you're down to 80% LTV and can remorgage to 1.89% on a 21 deal for the next 2 years, your monthly payment drops to £962.16
By year 6 you're at £184,183 you're down to 75% LTV and can remorgage to 1.44% on a 19 deal for the next 2 years, your monthly payment drops to £927.94
No more steps so assume that lasts for 4 years
Total costs over 10 years is £117,960, and you're left owing £149,532
Now instead go for the 3.99% 10 year one and you're paying 3.99%, which leave you owning £160,499 and costs £1,186 a month, so total cost of £142,320
So that 10 year fix costs 36k extra, including 24k in cash.
If house prices go up over the next 10 years your LTV will drop even more quickly so you'll same more money with remortgaging - even with a £1k product fee every 2 years.
So the reasons to fix for 10 years would be
1) You think interest rates are going to shoot up to the point that getting a 3.99% rate on a 2 year fix will be tricky even with a lower LTV
2) You think house prices will crash, meaning your LTV will increase, and you won't be able to get off the standard variable rate
Given in the UK, house price collapse is the most likely think to cause a government to fall, I don' think the 10 year fix makes sense.
But my point is that in Italy I could get a 20 year mortgage with a ~1% fixed rate for the whole period, which is lower than the same LTV UK 2 year rate, which is crazy. I can't believe that the risk of default is generally significantly lower in Italy.
*in the US. US ≠ World. In other jurisdictions in may be different, and since the article is in a dot-ca, they're in Canada, so things are different.
In Canada the amortization is 25-30 years, but most people don't get mortgages with a term that is greater than 5 years. You then renew at that point.
Mortgages are nearly always fixed rate, so that can't happen. That's the beauty of a mortgage, it can only ever go down, never up.
But you're right in that variable rate do mortgages exist, but it would be very foolish to ever take one. Don't do it. Always go fixed rate, you can always refinance down if the opportunity arises, or stay the course if not.
My experience holding mortgages over the last 20 years in the states, ARMs were a strictly better option and would have saved me a ton of money, even with Refis by paying down the principle faster.
But, The last 20 years are unlikely to continue, as it's been a long term decreasing interest rate environment, and there's a limit to how long and far that can happen.
Elsewhere, fixed rates are the exception. And oddly, fixed rates are cheaper in Ireland at least, but with the caveat that you're stuck with the mortgage for the time of the fixed term, unless you are willing to pay a penalty. Forex, I could have had a ~4.x%~ 3.7% adjustable, or a ~3.5%~ 2.9% fixed for 3 years. Amortizations being what they are, the ~3.5%~ 2.9% rate pays down much faster.
(edit -- just checked the actual current rates, which are probably closer to accurate than my just post coffee memory)
- you basically refinance every 5 years at max. If you’re underwater on a house, the bank will ask for cash to hit the desired loan-to-value.
- If rates go up you’ll need to be able to afford the higher payments or no mortgage. Luckily they are doing a “stress test” and you need to qualify at 5.XX% today. So there is buffer.
- most of Canada has recourse loans. If you sell and don’t pay off the mortgage, the bank can come after you for the difference.
Not maximum, but most typical. You can get, e.g., 10 year mortgages: