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Comment by JimTheMan | Hacker News Reader

In Australia the amount you can overpay a fixed mortgage before you incur fees is relatively low. (Ie if you pay beyond an additional $20,000 per annum you start incurring fees.) Is it the same in the states?

Do people just pay the principal and interest for 30 years?

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> Do people just pay the principal and interest for 30 years?

If interest rates go down, you refinance. If interest rates go up, you hold onto that cheap debt as long as you can. It’s a pretty unique product in that one party (the consumer) gets complete flexibility whereas the other (the bank) doesn’t

No, in general there is no prepayment penalty. In fact, it is relatively rare for a 30 year mortgage to last the entire 30 years. Normally it is paid off early, either because the person sells the home and moves somewhere else, meaning they pay off their old mortgage with the proceeds from the sale and get a new mortgage for the new house.

Or, you "refinance" your loan for a better interest rate after you have paid down the loan some. For example, I bought a house in 2018 and refinanced in 2020. Since my home price has gone up in those two years, and I had also paid some of the mortgage off, my rate was much better since my loan-to-value ratio was lower (basically the percentage of the market value of the home you are borrowing... the lower that is, the less risk the lender is taking, since they can sell the house to get back more than the cost of the loan, therefore it has a lower interest rate) I was able to save a large amount on my payment (went from paying $4700 a month to $3600), although it did extend the term of my loan for an extra two years. However, I doubt I'll be in the house that long anyway.

> No, in general there is no prepayment penalty. In fact, it is relatively rare for a 30 year mortgage to last the entire 30 years.

I believe the average mortgage duration is ~8 years, which is why the ‘mortgage rate’ tracks the 10 year Treasury rate and not the 30 year Treasury rate.

> In Australia the amount you can overpay a fixed mortgage before you incur fees is relatively low. (Ie if you pay beyond an additional $20,000 per annum you start incurring fees.) Is it the same in the states?

In several rounds of house buying and/or refinancing, I’ve never even seen an offer in the US that didn't expressly note the absence of an early payment penalty.

Except for certain very restricted circumstances, prepayment penalties have been illegal since 2014:

https://www.nolo.com/legal-encyclopedia/when-are-prepayment-...

No generally there is no pre-payment fee. Although I'm not going to say it doesn't exist. I've only heard about it on the internet. The avg length of stay in a house is like 4-5-6 years anyway at which point you request a payoff amount and the buyers money is sent to pay off the note. You can also pay any additional principal amount you'd like and pay it off in full at any time. You can also refinance it at any time if the rate drops.

So what do people in Australia do when they move and have to sell their house, which will happen a lot before the 30 years is up? Are the buyers stuck with the exact same terms that the original purchasers set on the remaining principal, and then have to enter a separate mortgage for the part that's already paid off?

Or do there tend to be clauses that allow full repayment on transfer of ownership or something like that?

We generally can't get fixed term mortgages that are greater than 3 years.

Most of us have variable mortgages with less conditions placed upon them.

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