How do Canadians feel about the shorter term(5 years) available for fixed rate mortgages? I would think that shorter term would contribute a significant level of anxiety regarding one's future financial solvency.
And yes, this is absolutely terrible public policy; forcing Canadians to take a series of short-term mortgages not only makes the economy far more vulnerable to interest rate shocks, but also creates a significant dead weight loss as homeowners and banks repeatedly churn through mortgage application and initiation paperwork.
The non-confirming loan share varies widely over time, but is usually double-digit percentage of overall mortgages.
https://www.integritylending.com/understanding-what-a-federa...
Doesn't that just mean that the government gives home owners free put options?
Yet another instance of welfare for the well-off?
The real issue is the prices having gone up so high to begin with.
That felt super weird for me coming from France where flexible mortgage rates do not exist.
But of course everybody was getting 1% last year, and now it's 1.5% and everybody already feels the difference. If it had to go up to 4% the whole country would be in crisis, and above that well...
(I personally think they should test for even higher rates – I'm terrified to see how many people are in absolute shock that rates are rising rapidly, after being told that exactly that will happen for years)
So the banks may well say "if you spend a minimum on food and clothing, and nothing on anything else, you can afford to pay high rates." But that's not what regular people would mean by affording it.
In denmark fixed rate mortgages are still the most common. I have a 30 years fixed rate (at 1%) mortgage, that I can pay out at any time (at end of any given quarter).
Flex rate mortgages are somewhat popular in good times, but they are renegotiated every year or every five years. There was a period where the one year rate loans had negative interest rates.
So it doesn’t cause me any anxiety.
Regarding the upside, the rates aren’t much different in the US where you typically have 30 years locked in. Unlike Canada, these also generally have no prepayment penalty, so you can always refinance on rate drops. I’m quite sure the rates on a ARM 5 year or 8 year would be directly comparable to a Canadian mortgage (and you always have that option in the US).
There’s lots of great things about Canada, but I think you’re really stretching to see a positive where there isn’t one. (I’m Canadian but I definitely don’t hold a positive view of our financial institutions.)
They're don't really come from the lending industry - lenders could not and would not ever create this product on their own.
They're a government subsidy to mortgagors enabled by the origination process, obscured by a few hops of financialization.
You get a rate guarantee for 30 years plus you can refi, sell or walk away if the bet doesn't go your way. It's pretty much begging to be exploited.
I was going to quibble with this since I’ve seen fixed rate mortgages in Ireland but…
> A fixed rate mortgage is a home loan for which the interest rate is kept the same for an agreed amount of time. The maximum length of time for which a mortgage can be fixed in Ireland is ten years.
https://personalbanking.bankofireland.com/articles/my-first-...
The fact that "cheap" 30 year fixed rate mortgages only exist in a few countries (US is only one I know of, but it's a big world) is the most accessible evidence that they're created by government policy (without having to dig into the technical details of how they are originated and guaranteed).
(without having done it, I think I don't like the idea of 1/2!)
You can argue +'s and -'s, but you can't argue it's free market rates.
Without being able to itemize, it might make more sense to pay the principal down, but my interest rate is low enough that I have to think if there is something better to do with extra money (we are already over exposed to the stock market). Also, Trump’s tax cuts for individuals will expire soon, so the bigger standardize deduction might go away with it.
And they work; arguably these are one of the reasons why "owning your own home" was able to be something that so many Americans see(saw?) as an unquestionable part of adult life. The government used its political power to make things easier for a huge subset of its less-well-off citizens.
> It's pretty much begging to be exploited.
And yet it mostly isn't. There hasn't been any huge crash or people getting filthy rich due to the recipients of 30 year mortgages exploiting the system in any way, and recipients are the ones that would be doing the exploiting in the context of your comment. The lenders of course caused 2008, etc, but they're arguably the ones who would hypothetically be exploited.
If it were actually begging to be exploited, I would suspect that we would see something different than this.
Policies to encourage construction directly would work better to increase home ownership than subsidizing mortgages.
Unfortunately, the existing home owners, directly or indirectly, would lobby local gov't/councils to stop new builds. Current zoning laws also don't help.
Those very US government programs that implement the political guarantee also implement an exploit in oh, so many programs for non-owner occupants, typically realtors / agents, to leverage in ways they absolutely cannot in a truly open commercial market. Every single realtor / agent acquaintance I've been introduced to will wax on about their impressive portfolio holdings if I give them an opening to do so.
Acting innocent, I inquire about the details of their fabulous business acumen. Every single one below the $20M valuation mark, without exception, and most cluster around the $1M valuation mark, hold the bulk of their assets via government or quasi-government-backed paper and not through a commercial bank loan.
The US rules around establishing owner occupancy in many programs are insanely easy to circumvent, and for all practical purposes never enforced. There are plenty of people exploiting the program making a pretty penny off of taxpayer largesse. Real estate is one of the most heavily subsidized assets in the US.
The US and Canadian homeownership rates are almost identical (around 66%). I don’t think the US’s mortgage subsidies significantly impact homeownership rates.
> And they work; arguably these are one of the reasons why "owning your own home" was able to be something that so many Americans see(saw?) as an unquestionable part of adult life.
The ownership rate for Americans (mostly 30y terms) and Canadians (usually 1-5y terms) is basically the same at around 65%.
* https://www.statista.com/statistics/184902/homeownership-rat...
Is the government buying the mortgages or how is this a subsidy from the government? It seemed from the great financial crisis that these mortgage backed securities were being bought by institutions all over the place, so if there is demand why would it be a subsidy?
US mortgages are certainly subsidised by the taxpayer through some complex financial instruments and those two government owned corporations.
Funnily enough when I jest to American colleagues about it being socialism they seem confused and don't think that it is at all.
Many don't seem to realise just how drastic a 30 year fixed term is in every other financial market on Earth. I think the max you can fix in Australia is 3 years?
The term mortgages to me make it a bit closer to variable rates. The rate gets updated every few years. Banks themselves to fund the mortgages don’t get 25 year loans. So as an institution they need to set rates based on risk so they don’t lose money. This risk increases the further you project into the future. So all other things being equal you are not paying a premium to insure against that risk.
I’m not commenting on the financial institutions as a whole, or other factors that may lead to higher or lower rates. I’m under the impression that rates are a higher in the us for the 25 year mortgages when calculated off of the overnight rates from the central banks. But I don’t have any data handy to back up the impression for I could be wrong.
I suppose having this be an option for the consumer is probably the best option. But for most consumers insuring against rate increases will be quite costly.
I’m not sure how you can make an argument that long and specific while completely ignoring the evidence to the south of you that contradicts it.
When rates are going down, yes.
But locking in low rates in the United States for 30 years either at purchase time or via refinancing is one of the weirdest advantages of home ownership here. It's surreal to have a 2.x% mortgage locked in for decades when rates are quickly going up and inflation is reducing the relative value of my debt and payments.
the asset price could remain stable, if the jobs that service those mortgages aren't removed.
Inflation of consumables can be controlled, but it is painful. Inflation of assets should not be controlled, even if it could - asset growth represents the wealth of those who invested in it. If this growth is artificially suppressed, millions would lose their retirement funds, and become poorer in the future, and for what?
The US 30 year fixed bottomed out at 2-2.5%, which seems about the same as the lowest 5 year fixed in Canada?
When Canadians have to renew at 5-7% in a few years that’s going to cause massive havoc.
But you can lock in a fixed rate that will be lower than a variable rate in the future when rates rise.
A huge number of Canadians will not be able to afford their mortgage payments over the next 5 years because they did not calculate rate rises when buying home. Furthermore, they won’t be able to sell the home without taking a huge loss because housing prices will have plummeted due to rate hikes.
Combine that with rising cost of food and gas, Canadians are in for a wild ride.
I expect a massive crash in the Canadian home market. In certain areas that have been high fliers I’d expect 50% - 60% declines or larger. Combine exploding interest rates, high inflation, and banning foreign buyers, the housing market is about to get “cheap” for cash buyers.
For most, it’s been more or less working out fine for some time, thus far.