In Australia, we have fixed and variable with all fixed rates being locked for only a number of years. So you are always going to have the bear increases in mortgage rates if they occur.
Yes. You can also borrow against whatever equity you have in your house. Say you bought a house for $200 and it's now worth $250, you can borrow against part of that $50K equity if you refinance, for example if you need a new roof. I don't think you can borrow 100% of your equity though, I seem to remember 80%. It's been a while since I've done it.
You can go above 80% but costs rise sharply.
Typically yes. There are mortgages that penalize you for paying them off early, but the conventional wisdom is to avoid those.
For our previous house, my family re-financed twice. In our present house, we got a 15 year mortgage, and paid it off early.
And these clauses were largely made illegal by the 2010 Dodd-Frank Act.
But I've refinanced twice (two different houses) once to get a lower rate and once to both get a lower rate and shorten the term to 15 years.
The real key is to NOT take equity out when you do this. Many people do but that's like starting over with a higher mortgage balance. Just refinance the outstanding balance if it makes sense, and do not reset the term back to 30 years. I'll have a fully paid-off house in a few years that I plan to retire in with only taxes and insurance to worry about.
There have been discussions in parliament for decades about the prevalence of fixed rates and the cost it has for the banking sector, but it's nearly impossible now to change it. Banks simply have to make less money, and expand abroad if they want to do more predatory variable rates. The French philosophy is that banks should not speculate too much on mortgage profits and accept to make some but not optimal profit there. Suffice to say that our banks are struggling a little bit more than say British banks.
Aren’t the mortgages ultimately guaranteed by the European Central Bank? No actual interest risk for the banks.
> It was all within the Fed's fund rate guidelines so I'm not sure how it was so scammy.
SVB people are getting charged with criminal charges.
The United States is unusual in the high proportion of long-term fixed-rate mortgages. Long-term fixed-rate pre-payable mortgages used to be the dominant product in Denmark, but low and falling short-term rates have led Danish borrowers to shift to medium-term (one- to five-year) rollover mortgages in recent years. France is the only other country with a majority of fixed-rate mortgages. Unlike the penalty-free pre-payable Danish and U.S. FRMs, French fixed-rate loans have pre-payment penalties (maximum three percent of outstanding balance or three months' interest). German mortgages can be fixed up to 15 years with a 30-year amortization.
We did it as soon as the rate dropped another 0.5%.
We had a worst-case scenario where a highish fixed rate was underwater for quite awhile, but when it finally wasn’t the payoff time for a refinance at a lower rate was in the matter of one or two months (the monthly payment got cut in half or so).
You need to find a broker who's willing to eat most of the costs. That's easier in the Bay Area where mortgages are high dollar so that they still make enough money to make it worthwhile.
I don't have closing statement with me, but the total cost is way lower than 1%.
And, yes, I obviously had a spreadsheet to evaluate the different scenarios.
From my US perspective, I would rather rent forever than risk such a loan, so I suppose there must be something else at play which makes your approach less awful than it would be if we did that here.
The real winners are those who own before the government enforces new price inflation policies on the market. (The only reason we have 30 year fixed mortgages is because of government intervention in the market.)
Broadly speaking, this product makes no sense. If interest rates go up, the value of the loan goes down. If interest rates go down, the value of the loan goes up ... until the borrower unilaterally refinances and pays of the loan at face value.
Indeed, no bank actually holds fixed rate loans. Instead they immediately sell it to Fannie May/Freddie Mac, which were created by the government specifically to allow for a product as absurd as the 30 year fixed rate mortgage to exist.
Also adjustable rates have been amazingly cheap in past and still are not that expensive. Like sub 1% total. And my adjustable rate loan would be 4.425% if it adjusted today.
Bought the house I’m in in 2010 at a 4% fixed 30-year. I’m never leaving.