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Comment by post_break | Hacker News Reader

What do you have?

I don't know about Australia, but in Canada mortgages are amortized over (usually) 30 years at first issuance, but they are on (usually) 5 year terms.

This means you'll renew your mortgage roughly five times before it is repaid, at the prevailing rates at that time. There's no such thing here as a mortgage with fixed interest rate over 30 years like, as I understand it, there is in the US.

>This means you'll renew your mortgage roughly five times before it is repaid, at the prevailing rates at that time.

This sounds a lot like ARMs aka balloon mortgages. Mortgage brokers ramming these everyone's throats played a big role in the 2008 melt down.

I don't know enough about what a "balloon mortgage" is to comment on that, other than to say that the 2008 mortgage crisis was not as severe in Canada as it was in the United States.

So, to the extent that mortgage terms were a factor in the crisis, and I don't know whether it was, I wouldn't say that this kind of mortgage was disproportionately worse.

"Balloon mortgage" was just a nickname they gave to ARMs at the time. In the US, 30-year fixed had been the bedrock of home mortgages for decades. Most home buyers didn't really know what ARMs were and brokers bent over backwards to misrepresent them. Many brokers also stopped offering fixed rate loans because ARMs paid out WAY higher commissions. There were a lot of lambos in Hialeah those years.

Lenders were equally complicit in this mess. They were approving borrowers for obscene amounts of money by calculating qualifying amounts using ONLY the initial ridiculously low interest rate of the ARM. Thus, purposefully not accounting for the inevitable rate hike. Most lenders also looked the other way when brokers were very obviously fudging loan applications to qualify borrowers for more money.

When those balloons finally popped (2-5 years from loan inception), home owners saw their monthly payment rocket up to unsustainable levels. This is what kicked off the wave of foreclosures (and why you often hear idiots, even right here on HN, blame the home buyers for the entire housing bubble).

Then there was the whole bundling of these ticking-time bomb mortgages into securities that got magically AAA rated and pushed into people's retirement funds. And also how banks insured these shit securities to protect themselves from what they knew was about to happen. But that's a whole 'nother story that goes beyond the mortgage aspect of it all.

Sorry for the history lesson!

2 or 3 years fixed interest terms are common and 1-5 years fixed terms are available. FI loans cannot be closed early without incurring some penalties (economic costs). But the most popular loans are what are called Variable Rate Loan over 25-30 years. The interest rate can vary through the term of the loan based on the interest rate movement by Reserve Bank of Australia. These loans can be fully paid anytime. Split loans are common too where a portion is fixed and the other portion is variable. Another unique feature in Australia for Variable rate loans is a so called offset account. This is a normal bank account attached to the loan and any money here offsets the loan balance. So people can save any extra money over the minimum repayment in an offset account to reduce interest payment (as it is calculated on the difference of loan - offset). The money from offset account though can be withdrawn anytime providing tremendous flexibility.

Spiders, mostly.

AFAIK long term fixed rate mortgages only exist in the US. Every other country has the equivalent to ARM only. This is why the rising of interests rates could be devastating to lots of home owners who budgeted based on the existing rates. I wonder what will happen.

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