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147

A 30-Year Trap: The Problem With America’s Weird Mortgages (www.nytimes.com)

submitted 1 year ago by [email protected] to c/[email protected]

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[–] [email protected] 115 points 1 year ago* (last edited 1 year ago) (4 children)

Fta: "It’s a one-sided bet,” said John Y. Campbell, a Harvard economist who has argued that the 30-year mortgage contributes to inequality. “If inflation goes way up, the lenders lose and the borrowers win. Whereas if inflation goes down, the borrower just refinances.”

Yeah won't someone think of those poor lenders who make...let's check my notes....130% on their investment or more over the 30 years and it is amortized so you pay the most interest up front in the first decade? Even if you refi you still start that interest over and pay thousands in closing costs to the bank on top of it.

Waahhhhhh Cry me a fucking river.

Lmfao The reason rate are locked is obvious.
Why should I lose my home because interest rates changed and your mtg goes up 40%?

That's what happens with 5 -15 year loan terms.
A buddy in the UK is facing this now. Because he can't get a 30 year loan and can't pay off his house he's forced to restrcture and his payment is going from $800 to $1300.

Man look at all that inequality defeated just like the article says it would be...not.

[–] [email protected] 32 points 1 year ago (2 children)

And the lenders don’t lose at all! They borrow the money at current rates, and immediately package it off to a mortgage backed security and sell it within weeks of closing. The only potential “loser” is the investor that buys the security, but that’s just the nature of investing.

[–] [email protected] 4 points 1 year ago (3 children)

The only potential “loser” is the investor that buys the [mortgaged backed security], but that’s just the nature of investing.

You say that, but we don't have to allow that kind of predatory shit to exist.

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[–] [email protected] 13 points 1 year ago

Yeh this is just thinly veiled propaganda.

[–] [email protected] 6 points 1 year ago

Came here to say the same thing. What a bullshit article.

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[–] [email protected] 66 points 1 year ago (9 children)

Ah yes, let's see if we can't pit groups of normal home buyers against each other, while ignoring the institutional investors who are buying up homes to rent out (short or long term). We can also ignore the fucked up trend of building bigger, more expensive housing on lots just barely bigger than the house itself, with the near lack of things like condos, duplexes and multiplexes. Yes, I'll openly admit I would never again live in a place where I share a wall with someone. But, when I was younger and costs mattered more, cheaper, higher density housing made more sense.

[–] [email protected] 18 points 1 year ago (1 children)

Exactly. You want people to be able to afford to buy homes?

Fix. The. Zoning. Code.

[–] [email protected] 8 points 1 year ago (1 children)

Kick NIMBYs where it counts and upzone at the state level. There's absolutely no reason a small number of NIMBY locals should be able to hold an entire state (or country) hostage by refusing to zone for anything other than single family homes.

[–] [email protected] 6 points 1 year ago (1 children)

Counterpoint: I live in Florida and the less that happens at the state level, the better. DeSantis and the FL GOP are doing their best to consolidate power in Tallahassee since they have a supermajority there and they will happily fuck over just about anyone just to show them who's boss.

The last thing I need is the assholes in Talla having more power over my neighborhood.

[–] [email protected] 3 points 1 year ago

These things are less about putting on state control and more about removing local control from the picture. The problems are always local ones with the small NIMBY crowds. CA just overrode all counties and cities and imposed a rezoning code. The law allows for those communities to play along and adjust their practices, but also allows the state to step in when they refuse, which has happened in some areas.

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[–] [email protected] 64 points 1 year ago (3 children)

Yeah, the last time the lenders pushed Adjustible Rate Mortgages as a way for borrowers to be able to afford a home with cheap monthly payments it turned out fucking great! Lots of people were able to buy the house of their dreams and the economy flourished for the next decade!

Oh no it didnt. A shit ton of people lost their homes and the banks and mortgage industry pulled a fast one, lied, and hid the evidence when found out. Oh and the economy took a shit!

[–] [email protected] 4 points 1 year ago

C'mon it worked out for the banks though!! The ones that are still around, anyway....

[–] [email protected] 3 points 1 year ago (1 children)

I took a combo loan, one 10 year ARM, and a 20 year fixed. I know I probably won't get a better deal when my rates inevitably increase at year 10, but saving almost 1.5 percent over ten years is nice. Hoping to have it paid off by year 15, so 5 years at a higher rate should be okay for now. Short-term arms are crazy.

[–] [email protected] 5 points 1 year ago (2 children)

If your in the US you should have refinanced in 2021 if it was an option. It's cheaper for me to pay the minimum on my home loan than it is to pay it off. Inflation is significantly more than my mortgage interest rate.

Hopefully it works out for you, but I'd be legit terrified of the moment that loan becomes adjustable rate.

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[–] [email protected] 33 points 1 year ago (7 children)

Something is good for consumers so it must be a problem. Fucking economists.

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[–] [email protected] 27 points 1 year ago (4 children)

I banked enough cash WFH to buy a house in October of '21 and got a 3.25% fixed. There are 28 years remaining with a $2,000 a month monthly payment.

Why would I give that up? What's the incentive to take a higher interest rate and a higher monthly payment? There really isn't one.

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[–] [email protected] 22 points 1 year ago (3 children)

And they almost completely ignore the elephant in the room. Nobody has been building new homes!

[–] [email protected] 28 points 1 year ago* (last edited 1 year ago) (4 children)

Nobody has been building new homes!

Do you live in the US? People have been flocking out of the cities to the rural parts of the country because of WFH. I work in general residential contracting in a town that was 20,000 citizens five years ago and is now over 100,000, and we've had to turn away probably 50 potential clients this year alone. We're booked under contract for the next four years.

People are absolutely buying new homes, but not having to make daily commutes to the downtown office is giving them the ability to build in historically cheaper parts of the country.

[–] [email protected] 18 points 1 year ago* (last edited 1 year ago) (1 children)

New home construction in the US was massively reduced back in the 2008 GFC and has remained depressed ever since. It's hyperbolic to say nobody is building, but there's been fewer new homes being added for awhile now and that's one of the central problems in the current housing affordability crisis.

[–] [email protected] 17 points 1 year ago (1 children)

And very few of them are under 350k That's the real issue

[–] [email protected] 5 points 1 year ago

Yes. Nobody is building starter homes. Even the 50+ communities going up have 4 bedrooms and 2200 sq ft.

[–] [email protected] 9 points 1 year ago (2 children)

We live in a rural ish area 2-3 hours from DC and homes are going up like crazy. In the last 2 years there have been 3 or 4 100+ home subdivisions built. As I understand it though they are almost exclusively rentals owned by the builder themselves.

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[–] [email protected] 5 points 1 year ago (1 children)

That sounds horrible for that city. A five times population increase in only 5 years seems like something that no city would be able to manage well.

[–] [email protected] 4 points 1 year ago

It sounds like a Ponzi scheme, mainly because it is one.

[–] [email protected] 4 points 1 year ago

Sure do! Been living in Alabama for almost 20 years at this point. Grew up in Minnesota. While I appreciate how slammed your profession is right now, you’re not really having an much of an effect on the market just yet. And none at all at the lower end of the market. I have seen a lot of really nice builds at price points I can’t afford though.

The mediam household income in Alabama is $54,943 and the median individual income is $30,458 according to the US Census Bureau. My wife and I combined make roughly $110k with myself making $70k. My wife is a mental health therapist with a master’s degree and I drive a truck. We’re lucky, but a lot of folks ain’t.

Growing up I was told, when your buying a house, your budget should be no more 2 times 1 persons (the husband’s) salary. Back in 2005 Dave Ramsey said no more than 4 times the household income. I did a bit of digging using both guides to see just what folks could afford in our local property market right now at the most common wages in the area, and the pickings are pretty slim until you get to the wages common for skilled trades. Given how frequently my wife, or I have been out of work, I decided use only a single income in my searches.

Here’s a paste dump of what I found:

$7.50/hr @ 40hr/Wk = $15,600/yr

X2 Gross = $31,200 https://www.zillow.com/tuscaloosa-al/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22isMapVisible%22%3Afalse%2C%22mapBounds%22%3A%7B%22west%22%3A-87.703283%2C%22east%22%3A-87.366123%2C%22south%22%3A33.028236%2C%22north%22%3A33.454732%7D%2C%22usersSearchTerm%22%3A%2245404%22%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A14208%2C%22regionType%22%3A6%7D%5D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22price%22%3A%7B%22min%22%3Anull%2C%22max%22%3A31200%7D%2C%22mp%22%3A%7B%22min%22%3Anull%2C%22max%22%3A166%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%7D%2C%22isListVisible%22%3Atrue%7D

X4 gross = $62,400 https://www.zillow.com/tuscaloosa-al/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22isMapVisible%22%3Afalse%2C%22mapBounds%22%3A%7B%22west%22%3A-87.703283%2C%22east%22%3A-87.366123%2C%22south%22%3A33.028236%2C%22north%22%3A33.454732%7D%2C%22usersSearchTerm%22%3A%2245404%22%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A14208%2C%22regionType%22%3A6%7D%5D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22price%22%3A%7B%22min%22%3Anull%2C%22max%22%3A62400%7D%2C%22mp%22%3A%7B%22min%22%3Anull%2C%22max%22%3A333%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%7D%2C%22isListVisible%22%3Atrue%7D

$16.00/hr @40hr/wk = $33,280/yr

x2 gross = $66,560 https://www.zillow.com/tuscaloosa-al/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22isMapVisible%22%3Afalse%2C%22mapBounds%22%3A%7B%22west%22%3A-87.703283%2C%22east%22%3A-87.366123%2C%22south%22%3A33.028236%2C%22north%22%3A33.454732%7D%2C%22usersSearchTerm%22%3A%2245404%22%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A14208%2C%22regionType%22%3A6%7D%5D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22price%22%3A%7B%22min%22%3Anull%2C%22max%22%3A66560%7D%2C%22mp%22%3A%7B%22min%22%3Anull%2C%22max%22%3A355%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%7D%2C%22isListVisible%22%3Atrue%7D

x4 gross = $133,120 https://www.zillow.com/tuscaloosa-al/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22isMapVisible%22%3Afalse%2C%22mapBounds%22%3A%7B%22west%22%3A-87.703283%2C%22east%22%3A-87.366123%2C%22south%22%3A33.028236%2C%22north%22%3A33.454732%7D%2C%22usersSearchTerm%22%3A%2245404%22%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A14208%2C%22regionType%22%3A6%7D%5D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22price%22%3A%7B%22min%22%3Anull%2C%22max%22%3A133120%7D%2C%22mp%22%3A%7B%22min%22%3Anull%2C%22max%22%3A710%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%7D%2C%22isListVisible%22%3Atrue%7D

$22.00/hr @ 40hr/Wk = $45,760/yr

x2 gross = $91,520 https://www.zillow.com/tuscaloosa-al/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22isMapVisible%22%3Afalse%2C%22mapBounds%22%3A%7B%22west%22%3A-87.703283%2C%22east%22%3A-87.366123%2C%22south%22%3A33.028236%2C%22north%22%3A33.454732%7D%2C%22usersSearchTerm%22%3A%2245404%22%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A14208%2C%22regionType%22%3A6%7D%5D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22price%22%3A%7B%22min%22%3Anull%2C%22max%22%3A91520%7D%2C%22mp%22%3A%7B%22min%22%3Anull%2C%22max%22%3A488%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%7D%2C%22isListVisible%22%3Atrue%7D

x4 gross = $183,040 https://www.zillow.com/tuscaloosa-al/?searchQueryState=%7B%22pagination%22%3A%7B%7D%2C%22isMapVisible%22%3Afalse%2C%22mapBounds%22%3A%7B%22west%22%3A-87.703283%2C%22east%22%3A-87.366123%2C%22south%22%3A33.028236%2C%22north%22%3A33.454732%7D%2C%22usersSearchTerm%22%3A%2245404%22%2C%22regionSelection%22%3A%5B%7B%22regionId%22%3A14208%2C%22regionType%22%3A6%7D%5D%2C%22filterState%22%3A%7B%22sort%22%3A%7B%22value%22%3A%22days%22%7D%2C%22price%22%3A%7B%22min%22%3Anull%2C%22max%22%3A183040%7D%2C%22mp%22%3A%7B%22min%22%3Anull%2C%22max%22%3A975%7D%2C%22ah%22%3A%7B%22value%22%3Atrue%7D%7D%2C%22isListVisible%22%3Atrue%7D

[–] [email protected] 12 points 1 year ago (2 children)

Don't worry, we're actually building a lot of them out here in the totally-long-term-sustainable desert of Phoenix area.

[–] [email protected] 3 points 1 year ago (1 children)

Plumbing not included

[–] [email protected] 5 points 1 year ago

There’s plumbing. Just no water.

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[–] [email protected] 18 points 1 year ago (2 children)

Sort of true. We bought our house in 2008 and got a 3-something% API fixed-rate mortgage. We hate this town and we know where we want to move, but we can't afford a higher rate mortgage, which we would have anywhere we moved. My wife has amazing credit and the house is in her name only (my credit is shit), so she'd still get a decent loan, but fixed-rate and anywhere near 3%? Probably not anymore.

[–] [email protected] 8 points 1 year ago (2 children)

My wife totalled my car 3 weeks ago so I've been trying to secure a temporary car loan.

Even with my high credit score and a credit union, I'm still seeing 7 to 8% On a car loan (!)

[–] [email protected] 5 points 1 year ago

Any loans right now are crazy. I just hope our cars are okay for the foreseeable future.

[–] [email protected] 3 points 1 year ago* (last edited 1 year ago)

My old car blew its head gasket (thanks Stellantis) so we also had no choice. Check leases. It was the same price to lease brand new as it was for us to buy a certified pre-owned car and the rate was better because it was a new car. We also have excellent credit.

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[–] [email protected] 15 points 1 year ago (1 children)

Australia here and you get like 3 years fixed if you're lucky.

Here, enter into this lifetime contract; after three years the terms change to whatever the hell I say they are, and you say sir yes sir or I destroy you.

[–] [email protected] 6 points 1 year ago (1 children)

Canada's the same to a max of 5 yrs. You can get longer ones but the rates suck

My understanding is because it's Canadian law that after 5 years banks can no longer charge you for early cancellation. In the states they can for the entire duration of the mortgage. Which, benefits the banks when rates go up, the buyer when rates go down (and the opposite in the states)

[–] [email protected] 10 points 1 year ago (2 children)

I'm pretty sure mortgages with early payoff fees are not the norm here in the US.

[–] [email protected] 4 points 1 year ago

They are not.

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[–] [email protected] 6 points 1 year ago (5 children)

Netherlands here: I had no idea the US has 30 year fixed rates. That is insane. Our housing market is fucked and rates are only locked for 10 to 15 years these days.

[–] [email protected] 13 points 1 year ago (7 children)

It's awesome knowing my payment won't change aside from maybe a bit more each year due to any potential tax increase!

How do you not panic realizing interest rates are rocketing and you'll be priced out of your own home and you can see it coming and there's nothing you can do???

What a shit system that must feel like.

[–] [email protected] 3 points 1 year ago (4 children)

It's crazy in the UK too, where 3-5 year fixes are common. I've know folk who at renewal next year will be paying £500-£800 extra, each month.

My biggest impact has been gas and elec, which maybe added that amount to my annual bill. I can't imagine the stress.

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[–] [email protected] 3 points 1 year ago

Canadian here. It's 5 years for us!

[–] [email protected] 3 points 1 year ago (1 children)

Most people can't afford the real cost of a home and instead end up paying something like 2.5 times the value in interest over those 30 years. Those who can will always go for a 15 year loan and try to pay it off somewhere in the 10 - 12 year range, the rest just pay interest for decades.

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[–] [email protected] 3 points 1 year ago (6 children)

You can also get 15 year loans with fixed rates here in the states. They’re usually .1% better on the interest rate compared to a 30 year, so for most people it doesn’t make sense to go with a 15 year when you can pay substantially less on a 30. Plus homes here are very much a very safe investment. When you own the home you only pay property tax generally after you pay the mortgage and in states like California that can mean an incredibly cheap place to live once paid (I’m talking 100s of dollars a year, though that will go up over time).

People bitch about housing here in the states, and it’s definitely not as good as it once was, but it’s also not as bad as many other places. I travel to Canada regularly and their shit is fucked. 😅

[–] [email protected] 6 points 1 year ago (4 children)

When you own the home you only pay property tax generally after you pay the mortgage and in states like California that can mean an incredibly cheap place to live once paid (I’m talking 100s of dollars a year, though that will go up over time).