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Monday: Silly Questions (lemmy.ca)

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

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

Hello!

I have a silly question, I’m confused as to how mortgage refinancing works. Let’s say I have a 25 year mortgage at 1.8% close to maturing, at the end of my term I have let’s say $450,000 left to pay down. I need to refinance for 20 years ears, but the rates are higher, 7%. This means that my mortgage is now $3800 per month or $1300 more than it was before. Does that seem right? How can anyone afford this kind of increase? Houses for rent in my area are going for $2100-2500 per month, and I’m considering selling if this is right.

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

Math aside (I didn't check) this is exactly how it works, and why 2008 subprime fiasco resulted in people suddenly not being able to afford their houses: you start with a rate you can afford and after a period (I think this was different to your case in 2008) the rate changes and now it's no longer affordable.

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

This makes sense, yeah. I did the whole stress test thing that was in play when I bought this place, and while I should be able to afford it, it will make for some even more frugal living.

I’m very worried about another crash like 2008, or even a smaller one and ending up with a house that’s worth 200-300k less and paying more for it.

[–] [email protected] 1 points 1 year ago* (last edited 1 year ago) (2 children)

I didn't check your math, but yeah, sadly, that's exactly how it works in Canada. This isn't called refinancing, but renewing.

You could refinance if you wanted to extract additional equity from your home, for example if you had $450k left to pay, but wanted to borrow an additional $30k for home renovations ; or if you wanted to extend your amortization back to 25 years or even 30 years, which would allow you to decrease your monthly payments.

While selling and renting is an option, I would also consider refinancing to extend amortization, but you should get in touch with your bank or mortgage broker in order to see what is possible in your situation.

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

Yes, sorry I meant renewing but wrote refinancing. That’s true, I could extend the amortization to 25 years but that means I’d be in the workforce longer than I’d hoped. I’m also worried about an impending housing crash with rates so high, it could mean my home would lose value, so I was thinking if it would make sense to sell and get the equity now, rent for 2-3 years and then potentially buy another place anticipating a crash. Don’t know if that would ever make sense, just a shower thought.

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

On paper, it makes sense. But it's hard to predict the future: what if you were to sell now and the prices kept going higher? You may only be able to re-enter the market at a much higher price (or not at all). Would you be confortable with this situation?

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

Not to show lack of empathy, does it work any differently in other countries?

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

In France, one of my friends has a 25 years 0.8% mortgage. The fees to break it are also limited by law, so if the rate was ever to drop below that, he could just pay the fee and get the new lower rate, but the bank will not be able to increase it.

On the other hand, refinancing is harder in France.

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

France always sounds fucking awesome.

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

Like any place, it has good sides and bad sides. But many French people are trying to immigrate to Canada/Quebec, so probably not that awesome in the end.

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

I've read someone in the US can lock in for the 25 years.

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

Yeah they've got 30 year mortgages, or at least had

Heh sorry I lost context, I just meant that after the period the rates get adjusted

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

You can still shop around - find a mortgage broker and see if you can get a slightly better rate, although it will be tough.

If affordability is an issue for you, your only solution is to earn more money. Ask for a (substantial) raise at work, citing cost-of-living increases. It helps to know how your company is doing financially. I had a customer ask me to cut my rates 10%, and I sent them a link to their annual report that said they were earning double-digit-millions, and had increased shareholder distributions -- they never wrote back. I feel bad for the people who took a pay cut for literally no good reason.

If they won't play ball with an immediate increase to your salary, then your only solution is to change jobs. It may be uncomfortable, but there is a shortage in qualified workers, and if you have good skills you shouldn't have any problem getting a 20-25% increase (or even higher).

Finally, once you get a new job that earns you 20% more, keep looking. You might be able to get another 15-20% raise by moving somewhere else after as little as 6 months in your current job.