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Comment by amscanne | Hacker News Reader

It’s been “great” for the last forty years because rates have been consistently trending downwards. You’ve never had to think about the downside. Your experience would/will be much different in an environment where rates are rising.

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.)

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30 year mortgages are a political guarantee to homeowners.

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.

> They're don't really come from the lending industry - lenders could not and would not ever create this product on their own.

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-...

Yes and the rates will tend to be considerably different - you will actually see a risk premium in the longer terms, as you would expect.

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).

Living in the US, I can't imagine taking out the maximum mortgage that I theoretically qualify for.

(without having done it, I think I don't like the idea of 1/2!)

It’s pretty easy to take out the maximum if you’re trying to buy a home without contingency on selling your previous one. Since only the monthly payments really matter towards qualification you could be 90% paid off on your first mortgage and still need to work around the DTI limit for your second. When you sell your first everything becomes comfortable again.

Right, I wasn't saying "I can't imagine a scenario where taking out the maximum would be an acceptable short term decision", I was saying "I can't imagine buying a house with the plan to make the maximum payments I qualify for over the long term".

Yes. This plus the home mortgage interest tax deduction amount to absolutely massive market distortions from policy encouraging home ownership in the US.

You can argue +'s and -'s, but you can't argue it's free market rates.

I wonder how many taxpayers are claiming the mortgage interest deduction nowadays after the rise in standard deduction.

it’s pretty useless to me since they lowered it to 750k and raised the standard deduction.

A $750k loan is easily $20k interest, and you're probably maxing out the $10k SALT cap too. That's almost triple the standard deduction.

It’s not triple anything if you’ve got a wife and 3 kids.

That's an interesting point, plausible less impact over time.

10% or fewer American tax filers itemize in the first place, so less than that use the mortgage interest tax deduction.

I barely eeked into my itemizing last year, and that was the first whole year of owning a house. I guess with principal reduction this year, I probably won’t qualify the next, and my mortgage is pretty large as well (as large as most living in a high COL area get).

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.

In high cost of living areas it isn’t too uncommon to have a 750k mortgage. In much of the country that’s insane but a 2400 sq foot house can easily go for $1,000,000 - $2,000,000 in high cost places.

Well.. Australia and Canada have more significant housing bubbles than the US without this. So how does that work?

> 30 year mortgages are a political guarantee to homeowners.

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.

They pretty clearly create upward pressure on home prices. That's a policy failure.

Policies to encourage construction directly would work better to increase home ownership than subsidizing mortgages.

under neoliberal economic theory, the high prices of homes would encourage building more of it.

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.

> 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...

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.

> And they work

The US and Canadian homeownership rates are almost identical (around 66%). I don’t think the US’s mortgage subsidies significantly impact homeownership rates.

>> 30 year mortgages are a political guarantee to homeowners.

> 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...

* https://tradingeconomics.com/canada/home-ownership-rate

> 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.

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?

Fannie May and Freddie Mac is the research starting point you want here.

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?

https://en.wikipedia.org/wiki/Fannie_Mae

https://en.wikipedia.org/wiki/Freddie_Mac

They pretty much have an implicit guarantee from the government, but they aren't government owned.

The irony is that because of the persistent low interest rates in the last decade it is more and more common to take out a 5/1 in the US because people think the slightly higher interest rate of a 15 or 30 year fixed is throwing away money. In fact, I know nobody except myself that got a fixed rate mortgage in the last few years. I certainly sleep better knowing that I don’t have to refinance in the next 2 years…

About 90% of residential owner occupied mortgages are fixed rate. Investors are more likely to go with an arm

Is that data available by location, like county or zip code? I wonder if in high cost of living areas the % of ARMs is higher.

I don’t think it’s fair to say I’m not aware of the downsides. Yes my own experience is universally in a very aggressive rate environment that could impact my perspective. But I’m also aware that the majority of the time variable rates end up ahead of fixed rates.

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.

> 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.

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