Economy Thread

[Nouseforaname]

19 minutes ago, Foxx said:

I'm a little confused here.

 

Here in the US an ARM is an adjustable rate mortgage, meaning that it is fixed for a set period of time and then it adjusts (usually) upward after that fixed portion of time. The initial fixed rate portion is almost always cheaper than a fixed rate mortgage, which is how they sucker people in. But there is nothing saying that you have to refinance an ARM. You're kind of foolish if you don't but, I guess, there are circumstances that might prevent that.

 

Is this what you are saying with regard?

We have generally two options here, fixed or floating.

 

1) Fixed. You lock in a rate for 1-5 years and that’s what you pay.  At the end of the term you could either pay off the capital or refinance with different terms with the same or different bank.  Changing the terms of the mortgage earlier will give you a penalty.

 

2) Floating or variable.  Typically tied to the banks prime rate - 50bps.  Has the option of converting to a fixed in some cases.  Also has a maximum term of five years.

 

In either case, to get approval for a mortgage, you need to be able to prove you could handle a significant interest rate hike.

Edited October 7, 2022 by Nouseforaname

[Nouseforaname]

All is not doom and gloom at crédit suisse @Foxx

[Foxx]

28 minutes ago, Nouseforaname said:

All is not doom and gloom at crédit suisse @Foxx

Just getting up. Will have a look around to see what you mean in a bit here. I also wanted to continue the mortgage discussion a bit.

[Nouseforaname]

2 minutes ago, Foxx said:

Just getting up. Will have a look around to see what you mean in a bit here. I also wanted to continue the mortgage discussion a bit.

They are proceeding with a bond buyback program to save on interest costs and solidify its balance sheet.

[Foxx]

5 minutes ago, Nouseforaname said:

They are proceeding with a bond buyback program to save on interest costs and solidify its balance sheet.

I thought I saw yesterday where they were considering selling assets to raise capital. Might have been for this reason(?). And.. at these prices, why the hell wouldn't you proceed to buy back your company that you sold at a much higher basis.

[Ann]

Some light reading

 

 

 

 

[Foxx]

14 hours ago, Nouseforaname said:

We have generally two options here, fixed or floating.

 

1) Fixed. You lock in a rate for 1-5 years and that’s what you pay.  At the end of the term you could either pay off the capital or refinance with different terms with the same or different bank.  Changing the terms of the mortgage earlier will give you a penalty.

 

2) Floating or variable.  Typically tied to the banks prime rate - 50bps.  Has the option of converting to a fixed in some cases.  Also has a maximum term of five years.

 

In either case, to get approval for a mortgage, you need to be able to prove you could handle a significant interest rate hike.

From the sounds of it, Canadian mortgages are not far off from UK mortgages.

 

I guess I am still a bit unclear on how it would work.

 

For example purposes, lets say you are taking a 100k mortgage at 4%. How would the amortization work? Would you then be paying a minuscule amount of principal and the majority of the payment be interest? What would the principal balance be on that 100k after 5 years? Would you then start over with a new loan on a new amortization schedule, thereby paying more interest and very little principal again, or might it pick up where the last mortgage left off?

 

Here in the states, the conventional mortgage of a fixed rate loan, you pay most of the interest upfront and the principal balance you are paying picks up until the pendulum swings the other way. I don't know that you could finance a mortgage for 5 years here, I think the shortest loan you could get would be a 10 year mortgage but after that ten years, the mortgage is paid in full as long as you comply with the terms.

[Nouseforaname]

4 minutes ago, Foxx said:

From the sounds of it, Canadian mortgages are not far off from UK mortgages.

 

I guess I am still a bit unclear on how it would work.

 

For example purposes, lets say you are taking a 100k mortgage at 4%. How would the amortization work? Would you then be paying a minuscule amount of principal and the majority of the payment be interest? What would the principal balance be on that 100k after 5 years? Would you then start over with a new loan on a new amortization schedule, thereby paying more interest and very little principal again, or might it pick up where the last mortgage left off?

 

Here in the states, the conventional mortgage of a fixed rate loan, you pay most of the interest upfront and the principal balance you are paying picks up until the pendulum swings the other way. I don't know that you could finance a mortgage for 5 years here, I think the shortest loan you could get would be a 10 year mortgage but after that ten years, the mortgage is paid in full as long as you comply with the terms.

Let’s say you buy a home for 500k amortized over 25 years at 4%.

 

Assuming you drop 20% down, you’re borrowing 400k and paying $2,100 monthly.  At the end of the five year term, you’ve paid 52k in principal and 74k in interest.

 

After five years, you can refinance the full 347k remaining balance with the same or another bank with whatever terms are available and favorable.  When calculating amortization, you could choose to reamortization @25 years or @20 years.

[Foxx]

3 minutes ago, Nouseforaname said:

Let’s say you buy a home for 500k amortized over 25 years at 4%.

 

Assuming you drop 20% down, you’re borrowing 400k and paying $2,100 monthly.  At the end of the five year term, you’ve paid 52k in principal and 74k in interest.

 

After five years, you can refinance the full 347k remaining balance with the same or another bank with whatever terms are available and favorable.  When calculating amortization, you could choose to reamortization @25 years or @20 years.

How do they determine what the amortization schedule is? How do you get the option of a 25 year schedule on a 5 year loan? Something doesn't sound right with that.

 

If I'm understanding you correctly, it sounds like after that second refi, you would then have to refi again. And, it sounds like you pay a shit ton more in interest than you would here in the states because when you refinance, you start that schedule all over again(?).

[Nouseforaname]

7 minutes ago, Foxx said:

How do they determine what the amortization schedule is? How do you get the option of a 25 year schedule on a 5 year loan? Something doesn't sound right with that.

 

If I'm understanding you correctly, it sounds like after that second refi, you would then have to refi again. And, it sounds like you pay a shit ton more in interest than you would here in the states because when you refinance, you start that schedule all over again(?).

I’m making payments based on a 25 year amortization.  When I refi, I would generally choose a 20 year amortization.  If ever rates were to be extremely high when I refi, I could choose a longer amortization but that’s obviously a bad option but it can sometimes be between that and selling your home because rates are so high that you can’t afford to refinance. 

[Foxx]

6 minutes ago, Nouseforaname said:

I’m making payments based on a 25 year amortization.  When I refi, I would generally choose a 20 year amortization.  If ever rates were to be extremely high when I refi, I could choose a longer amortization but that’s obviously a bad option but it can sometimes be between that and selling your home because rates are so high that you can’t afford to refinance. 

Well, not for nothing but it sounds like a worse system than what we have here.

 

I hope for you that the world returns to a somewhat normal state (whats normal?) condition before your next refi comes about.

 

I was looking for another house to purchase as a rental before the rates went through the roof and I'm certainly not parting with any more capital than I would ordinarily have to, to finance a purchase at this point. So, I guess I am out of the market for the foreseeable future. Unless of course a deal comes along that is too good to pass up.

[Crap Throwing Clavin]

35 minutes ago, Foxx said:

How do they determine what the amortization schedule is? How do you get the option of a 25 year schedule on a 5 year loan? Something doesn't sound right with that.

 

If I'm understanding you correctly, it sounds like after that second refi, you would then have to refi again. And, it sounds like you pay a shit ton more in interest than you would here in the states because when you refinance, you start that schedule all over again(?).

 

I'm guessing he's referring to a 25-year ARM with a fixed rate for 5 years.  400k at 4% fixed rate for 5 years, with a 25 year amortization.  After 5 years, refi with a new loan at a 20 or 25 year amortization.  

 

Because otherwise, his post is making no sense.

[Nouseforaname]

15 minutes ago, Crap Throwing Clavin said:

 

I'm guessing he's referring to a 25-year ARM with a fixed rate for 5 years.  400k at 4% fixed rate for 5 years, with a 25 year amortization.  After 5 years, refi with a new loan at a 20 or 25 year amortization.  

 

Because otherwise, his post is making no sense.

That’s pretty much it. 

[snafu]

1 hour ago, Foxx said:

From the sounds of it, Canadian mortgages are not far off from UK mortgages.

 

I guess I am still a bit unclear on how it would work.

 

For example purposes, lets say you are taking a 100k mortgage at 4%. How would the amortization work? Would you then be paying a minuscule amount of principal and the majority of the payment be interest? What would the principal balance be on that 100k after 5 years? Would you then start over with a new loan on a new amortization schedule, thereby paying more interest and very little principal again, or might it pick up where the last mortgage left off?

 

Here in the states, the conventional mortgage of a fixed rate loan, you pay most of the interest upfront and the principal balance you are paying picks up until the pendulum swings the other way. I don't know that you could finance a mortgage for 5 years here, I think the shortest loan you could get would be a 10 year mortgage but after that ten years, the mortgage is paid in full as long as you comply with the terms.

 

Here in the U.S. (at least in downstate NY, it is called a "Balloon" loan.  Happens all the time.

30 year am, 5/10/15 year maturity.  Yes, you're only chipping a bit way from the principal.

Residential balloon loans don't generally have prepayment penalties, so borrowers have the ability to throw extra $ at the principal.  They can pay off the balance at maturity, or refinance.  Commercial balloon loans generally do have prepayment penalties.  Commercial borrowers are more likely to refinance at maturity.

 

A lot of people want to free up monthly $$ for spending on other things and kick the payoff issue down the road.  Or maybe they figure that they're going to sell the asset before maturity and they'll use the equity to pay the balance.

 

Not infrequently, a buyer will negotiate with a seller for the seller to "hold paper".  So a buyer would pay a chunk of the purchase price and sign a note and mortgage for the balance.  Sellers aren't in the business of waiting 30 years to get paid off, but they want to sell and perhaps their purchaser isn't quite creditworthy at the present moment.  So they'll also do a balloon loan.  Seller gets his/her money in three years and the purchaser has an easier time refinancing the asset rather than financing a purchase.

 

 

12 minutes ago, Crap Throwing Clavin said:

 

I'm guessing he's referring to a 25-year ARM with a fixed rate for 5 years.  400k at 4% fixed rate for 5 years, with a 25 year amortization.  After 5 years, refi with a new loan at a 20 or 25 year amortization.  

 

Because otherwise, his post is making no sense.

 

 

 

 

[Foxx]

46 minutes ago, snafu said:

 

Here in the U.S. (at least in downstate NY, it is called a "Balloon" loan.  Happens all the time.

30 year am, 5/10/15 year maturity.  Yes, you're only chipping a bit way from the principal.

Residential balloon loans don't generally have prepayment penalties, so borrowers have the ability to throw extra $ at the principal.  They can pay off the balance at maturity, or refinance.  Commercial balloon loans generally do have prepayment penalties.  Commercial borrowers are more likely to refinance at maturity.

 

A lot of people want to free up monthly $$ for spending on other things and kick the payoff issue down the road.  Or maybe they figure that they're going to sell the asset before maturity and they'll use the equity to pay the balance.

 

Not infrequently, a buyer will negotiate with a seller for the seller to "hold paper".  So a buyer would pay a chunk of the purchase price and sign a note and mortgage for the balance.  Sellers aren't in the business of waiting 30 years to get paid off, but they want to sell and perhaps their purchaser isn't quite creditworthy at the present moment.  So they'll also do a balloon loan.  Seller gets his/her money in three years and the purchaser has an easier time refinancing the asset rather than financing a purchase.

 

 

 

 

 

 

Yep, we did a balloon loan on moms place.

 

I just kind of find it odd that that is all you can get in Canuckistan and the UK.

[snafu]

2 minutes ago, Foxx said:

Yep, we did a balloon loan on moms place.

 

I just kind of find it odd that that is all you can get in Canuckistan and the UK.

 

Banks love them.

Keeps the borrowers coming back. I'm sure lenders hate the borrower who pays a minimum monthly payment for 360 consecutive months.

 

 

[Foxx]

2 minutes ago, snafu said:

I'm sure lenders hate the borrower who pays a minimum monthly payment for 360 consecutive months.

And gets all that interest? I'm not sure they hate that all that much.

[Crap Throwing Clavin]

8 minutes ago, snafu said:

 

Banks love them.

Keeps the borrowers coming back. I'm sure lenders hate the borrower who pays a minimum monthly payment for 360 consecutive months.

 

 

 

Actually, the probably prefer it.  That predictability makes it easier to sell the mortgage and/or issue mortgage bonds on it.

[Crap Throwing Clavin]

1 hour ago, Nouseforaname said:

That’s pretty much it. 

 

That's pretty typical for Americans, too.  

 

We refi'd our 4.5% 30-year mortgage (with 22 yrs left) and 7% HELOC into a 15-year fixed at something like 1.5%.  Same payment, lopped eight years of the length of the loan.  We're in the minority - most would have refi'd to a 30-year, reduced the monthly payments more, but paid far more interest over the life of the loan.  People are, fundamentally, fiscally stupid.

[Nouseforaname]

Just now, Crap Throwing Clavin said:

 

That's pretty typical for Americans, too.  

 

We refi'd our 4.5% 30-year mortgage (with 22 yrs left) and 7% HELOC into a 15-year fixed at something like 1.5%.  Same payment, lopped eight years of the length of the loan.  We're in the minority - most would have refi'd to a 30-year, reduced the monthly payments more, but paid far more interest over the life of the loan.  People are, fundamentally, fiscally stupid.

I bought my house 18 months ago and I locked in 1.68% for five years at 25 year amortization.  
 

I had colleagues of mine who were refinancing and asking me if they should take fixed or floating at an obvious discount.  Their mindset was, even if rates go up, they won’t go up much.  Guess they were wrong.