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Comment by leononame | Hacker News Reader

I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to people.

I also have a mortgage on my apartment and I also think it's a decent choice, especially considering that I'll have less income after retirement. But most people are only a couple of bad turns in life away of losing everything they own.

All in all, I'd say the way to think this article presents does hold up to mortgage as well.

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> and everything else

Unless you live in a no-recourse state, where they can't take everything else.

In AZ, CA, TX, WA, and a handful of other states, banks can't go after your other assets, just the house that's mortgaged.

In CA, only the original mortgage used to buy your residence is non-recourse. If you refinance, the new mortgage is almost certainly recourse.

There is also a similar process, non-judicial foreclosure[0], which is similar to non-recourse in some ways, but not for tax purposes (e.g. cancelation of debt income).

[0]https://www.nolo.com/legal-encyclopedia/how-foreclosure-work...

Interesting. Do you know if mortgage rates in those states are higher, to compensate lenders for the increased risk?

I think it matters a lot more for commercial mortgages. In any event, it's like 20-30bps or less according to the Fed. So higher, but not that much higher even for commercial mortgages, and even less for residential where there's a lot more federal protection going on.

The bigger impact, I believe, is that housing prices can go more crazy. People will take more risk if they know they can walk and leave the bank holding the bag, so there isn't that limiting factor on prices.

(Though I suspect, but obviously can't confirm, that the effect from non-recourse mortgage is absolutely dwarfed by other factors, especially out here on the west coast where we have very restrictive zoning policies, weaponized environmental policies inside urban areas, etc)

WA resident: our mortgage is 2.5% from the credit union. I've not noticed that current rates are any worse than other states I've checked. OTOH, in 25 years of living here, I've never seen house prices go down, only stay steady.

Home prices definitely went down during the great recession.

So did the wages, and those went down more. If you lost a job during that time, you're pretty screwed.

> they'll take your house

Yes, and they'll sell the house to cover the debt. But the amount they receive from selling the house in excess of the debt goes to you.

I.e. you'll get the equity portion.

It's in your mortgage contract. Worth reading.

Unless you're backpaid enough so that they take equity in a penalty.

And now you're homeless and with your equity you cannot acquire capital. Your credit is also tanked due to the default...

Remember, most people do not own multiple houses and having no stable address can really mess you up legally even.

What would be different in this situation if the person were renting? Usually costs are similar per month for comparable places. I guess the down payment is a difference? But if you’re that far in arrears on rent you’re really still bad off…

I don’t feel convinced that having a mortgage debt is that much worse than not having one, if you lose your job and war and other bad things.

If your house is still worth enough to cover the debt. If the sale of your house is not enough to cover it (which can happen if you bought during a bubble that burst), will your whole debt at least be forgiven?

It's not forgiven, even in a non-recourse mortgage. So it can still e.g. hurt your credit score. They just legally can't pursue you for it.

With a recourse mortgage, they can go through normal debt channels (including wage garnishment, etc).

"[R]ecourse mortgage": It would be better to say "recourse loan". Mortgages are specific to properties. Loans are generic for anything. In my personal experience, non-recourse loans are basically payday loans with horribly high rates. You would never do it, if given the choice. I guess that 100% of home mortgages (in highly developed countries) are recourse by legal requirements.

> I guess that 100% of home mortgages (in highly developed countries) are recourse by legal requirements.

Not necessarily so in the US. In several states (including the biggest ones like CA and TX), non-recourse mortgages are the default. In other states, sometimes non-recourse mortgages exist too.

E.g. right now I'm sitting on a 2.5% fixed 30 year non-recourse mortgage.

In short: yes. Imagine you bought a home using a mortgage in the year 2000 in Silicon Valley. Then you go bankrupt in 2007. Your home will probably have appreciated 100-200% during this crazy period. It is very possible you will receive money back from the bank after they sell your home.

My question was specifically about the opposite case, so I'm not sure what your point is.

Specifically, I'm asking if the mortgage deals the poster above was discussing would help if the house is now worth less than the mortgage.

Yes but I think they're referring to negative equity.

No snark, but posting with genuine concern for any homebuyers who didn’t experience the pain of 2008, please read and grok this: https://www.investopedia.com/terms/u/underwater.asp

If there is a war you leave your house behind. If you rent you can save the difference in a foreign savings account.

the point is there is alway risk and many different situations. depending on details there are different results.

>> If you can't pay, they'll take your house and everything else until they decide that the debt is paid.

This is new. Mortgages in the US traditionally took just the home as collateral. Thanks for the reminder that this is now a thing to look out for, as I may need to borrow one more time than I ever expected.

I think it's actually the reverse. The house is the only collateral, but traditionally you would still owe the deficit if the collateral couldn't be sold to pay off the whole loan. This is what's changed in recent decades. A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house.

> A lot (most? all?) primary-residence home loans in the US are non-recourse, meaning that you aren't liable for the deficit - you only lose the house.

This is wild. In Canada not only do we all take interest rate risk every 5 years maximum as we can’t lock in for longer (which seems to make our whole society less robust), we can’t refinance early if rates drop without massive penalties eliminating any incentive to do so, but all of our mortgages are full recourse.

I can’t believe how much worse this seems, on a societal level, than the US.

A couple of other good points vs Canada: most fixed-rate US mortgages don’t have a prepayment penalty, and many offer the option to “recast”, which means you can make a lump-sum payment and reamortize your loan while keeping the rate and end date the same. This has the effect of lowering your monthly payment and is often used as an alternative to refinancing if you’re buying and selling a home in sequence.

In Canada, it's actually worse than stated. You do have a prepayment penalty as long as current interest rates are lower than your loan's interest rate.

Now that interest rates are higher than they were a couple of years ago, TD Canada Trust waived all my prepayment penalties. They were happy to let me prepay as much as I wanted.

It's incredible how one-sided the Canadian system is. Prepayment is acceptable as long as the bank benefits. Prepayment is not ok when the person taking out the loan benefits.

Thanks for this. I’d never heard of this option and once again I am shocked at how much better Americans have it than Canadians when it comes to mortgages.

> In Canada ... all of our mortgages are full recourse.

Except in Saskatchewan and Alberta [1].

[1]: https://financialpost.com/personal-finance/mortgages-real-es...

Wow thanks for sharing. I had no idea.

I mean, manufacturing 30-year fixed rate fully pre-payable non-recourse mortgages does not happen in a free market. It takes a lot of government subsidies to make that happen—in particular the government assumes the credit risk on something like 85% of US mortgages. The United States government is very into the idea of spending its resources to subsidize homeownership. Canada has made different policy decisions, like single-payer healthcare. If the societal choice was between universal healthcare and extremely borrower-friendly mortgages (and I don’t think that it really works that way, at least not in such stark terms) I’m not sure I’d pick the mortgages.

It can happen. There is risk, but the reward is very high and so it is worth it.

However the government often will not allow you to get the full reward and so while the numbers work out for everhone in a free market it doesn't happen. adjustable rate mortgages in the us are lower interest rate. Often in the us they are a better deal - we are just looking at one case where everyone in a fixed rate two years ago is better off than those with adjustable rates.

> It takes a lot of government subsidies to make that happen

No doubt, but the upside is a populace not especially at risk to interest rates which is absolutely crushing and systemically risky currently.

> in particular the government assumes the credit risk on something like 85% of US mortgages.

In Canada, CMHC does something similar so I am not sure we get away with anything special that the Americans are not.

You should ask your parliament to create the equivalent of Fannie Mae and Freddie Mac in your country. Gov't backed and buys loans from retail/commercial banks under strict guidelines. This helps to create a huge fixed rate mortgage market in the United States. I agree: Fixed rate mortgages are terrific for increasing home ownership. Plus, it moves the interest rate risk from retail people (less sophisticated) to institutions (banks, etc.) (more sophisticated).

I read my mortgage papers carefully before signing. I made sure there was no early payoff penalty.

This worked out fine when interest rates dropped and I refi'd. I've refi'd many times whenever the interest rate dips :-/

In Canada? Who was your lender? I did an exhaustive (I thought!) search when I last got a mortgage and could not find a fixed rate option that did not have a large prepayment penalty.

In the US. I don't know much of anything about Canada.

That is just the mortgage. I assume that you also defaulted on media and anything else you had on credit, such as student loans.

And those do not have such nice terms either.

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