Mortgage Interest Rates

[wise_rita]

Locking in interest rates for 15, 30 or however many years is unique to America (side note: I have no idea about Canada so they can chime in).  Were you aware of this fact?

Reading about ANY interest rate locked in for the life of the loan is absolutely crazy cakes to me!  And makes me very jealous.  

That must change the housing market quite drastically (namely people can pay tons knowing they won't ever have to overextend themselves due to rising interest rates), no?

[CrazyLucky]

I guess it cuts both ways. We bought in March 2021 and got an interest rate of 2.8%. If we had the current average interest rate (I think 6.7%?) that would have put our house out of reach.
I had no idea this was different from the rest of the world! File it under "Things I never thought about."

[sadlebred]

I knew it was different in England and Canada but not the rest of the world.

[flygirl]

I knew it was different in Canada but I have no idea about other places. I’d actually like to know how it works in other places-like of the term is renewable after 5 yrs, what if you lose your job when it comes time to renew? Do you have to sell your house and move?

[plutosmoon]

I only know because I deal with international students and their finances. I knew Canada was different because exh and his family are Canadian. Some of my international students have told me mortgages are not the norm in their country and most people save up cash for home purchases, I'm not sure if this is true, or just them telling us this to discount their large cash reserves.

[sometimesrunner]

I knew about Canada because of this place. Getting a new rate every 5 years would be anxiety-inducing for me.

[wise_rita]

Oct 4, 2022 7:48:18 GMT -5 flygirl said:

I knew it was different in Canada but I have no idea about other places. I’d actually like to know how it works in other places-like of the term is renewable after 5 yrs, what if you lose your job when it comes time to renew? Do you have to sell your house and move?

Even a 5 year rate is ridiculously long IME!

But good question. I've only ever been able to lock in 2 years at a time with a renewal once. @ I do remember being grateful that I was pregnant and hadn't had the baby yet, as I heard a dependant lowers your borrowing capacity by 20%.

[heygrey]

We bought in 2020 in Canada and it was a learning curve for me, since I grew up familiar with the American mortgage system. We had several options - 1) lock in for 5 years at 1.79%, 2) lock in for 4 years at 1.69%, 3) something floating based on prime. We chose #1 because that is still a ridiculously good interest rate and I wanted the guarantee of an extra year vs. .1% lower. And the floating was just never an option. The rates were so low at the time there was no where to go but up. That's a better option if you were to buy when it's high (now) and you assume the rate will go down (I wouldn't bet on it currently).

I'll be completely honest that I still don't entirely understand the mortgage system here and I'm a little anxious to renew our mortgage in 3 years. The lender does a stress test when you apply for your mortgage to pretend you have a higher interest rate to see if you can still afford your mortgage (at least on paper). This is supposed to help avoid situations where people overextend themselves while rates are low and then can't pay when rates increase at renewal. We passed that easily and our financial situation hasn't decreased so I'm still confident we'll be able to afford our mortgage, but our mortgage payment will go up almost guaranteed.

[wildrice]

I knew this, but I honestly think I learned it somewhere in conversation on these boards. I'm not sure it has come up in my life otherwise.

[flygirl]

heygrey, wise_rita, that would stress me out so much. Do you have to prove your income and get an appraisal plus pay closing fees again?

[wise_rita]

Oct 5, 2022 9:37:47 GMT -5 flygirl said:

heygrey, wise_rita, that would stress me out so much. Do you have to prove your income and get an appraisal plus pay closing fees again?

Yes, yes and I don't really know what you mean by "closing costs" so can't really answer that.

The appraisal isn't very intense and is SUPER conservative. There's a mortgage origination fee of like $500 but the one time I did it all the banks were offering big incentives so this isn't a big thing.

Also you could stick with your previous mortgage provider without having to DO anything. You just wouldn't get a (temporary) locked in, ridiculously low interest rate. It's not like your bank would revoke your mortgage.

[heygrey]

Oct 5, 2022 9:37:47 GMT -5 flygirl said:

heygrey, wise_rita, that would stress me out so much. Do you have to prove your income and get an appraisal plus pay closing fees again?

Not if you stay with your current lender. If I’m happy with the rate the offer me I can just sign the papers and be done. If I want to shop around for a better rate it is a bit more involved, but most lenders have a cash back incentive that negates the small origination fee. We got $1500 back last time and our origination fee was less.

[Wallflower]

This is all so interesting to me. It would be very stressful for me, since my brain has been trained to expect it to work like it does here (US).

It sounds like mortgages in places like Canada stay with the mortgage originator - you take out a mortgage with Banks R Us, it stays with them. That is much less common here. Banks/lenders will originate a loan, then sell it on to someone else. This means you change who you are paying back during the life of the loan, sometimes several times.