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I've been tormenting myself about whether or not I'm ready to buy a house. At this point, I think I need someone other than my coworkers ("BUY NOW BUY BUY BUY") or my parents ("I don't know, sweetie, do whatever you think is best") to bounce my anxieties off of. My situation: Base Income: 3976/mo net Performance bonuses: steadily at 12,000/year net. Half paid in July and December. Could change for better or worse. Rent: 975/mo Food and Household Supplies: 200/mo (on a strict cash-based budget here, as this category is the easiest to get out of control for me) Pet Supplies: 225/mo (one cat has asthma and requires expensive dust-free litter. Good thing I love the little poo poo) Car + Rental Insurance: 132/mo Utilities/Internet: Roughly 100/mo in winter, 50/mo in summer Gas: 100/mo Spotify: 10/mo Net income after expenses: 2234/mo. Of this, I save $1640 towards a down payment and $300 towards “fun” savings. The remaining $~300 usually gets eaten up in non-routine expenses (lots of vet bills, ugh) and entertainment I have 55k saved up. When I do buy a house, I would like to keep back 10k for emergencies, leaving me with 45k currently. My boyfriend will live with me and pay rent, but I’m doing all my calculations assuming I have to carry the mortgage alone (as the bank will do the same, ha) I wasn’t planning to buy a house for another year, when after my routine savings, bonuses, and an expected windfall of $10k I’d have about 85k for the down payment available. However, I am 1) a data analyst and 2) living in one of the hottest housing markets in the country. The median home in my city (Portland OR) is about 400k right now. Prices increased 14% in 2016, and are expected to do 5-10% in 2017. Interest rates, of course, are also expected to rise. I put together a spreadsheet to calculate my expected mortage+taxes+insurance+possible PMI. I’ve got it set up so that you can enter the expected rise in interest rates and home prices as well as the down payment you’ll have available each month. Assuming rates and home prices rise linearly throughout the year, you can then see your expected total monthly payment. Per those calculations, if home prices rise 15% and interest goes up 1%, I’ll be paying about $500/mo more in a year than I would if I bought a comparable house today. If home prices rise 10%, I’d be paying $50/mo more. If home prices rise 5%, I’d be paying only $70/mo less. Obviously, there are huge assumptions in all these numbers. However, they give the feel that if I buy now with less down, I’ll be paying about the same or possibly less than if I waited a year and had to deal with higher prices and interest. I just want some advice to people who aren’t all caught up in this. I feel that at 25 with only 45k down, I’m a little young and immature to buy a house. I’m worried about major unexpected expenses. I’m worried about how much of a pinch I’ll feel about paying roughly $2k/mo on housing when my monthly net is only $4k. However, I’m also worried about the market moving out from under me and continuing to rent in a terrible market with awful, loud neighbors living above me. What say you? Should I start approaching a lender and real estate agents, or should I wait until I have more down and feel a little less anxious?
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Dec 31, 2016 19:39
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Hydronium posted:I've been tormenting myself about whether or not I'm ready to buy a house. At this point, I think I need someone other than my coworkers ("BUY NOW BUY BUY BUY") or my parents ("I don't know, sweetie, do whatever you think is best") to bounce my anxieties off of. I would start by asking around and figuring out who a good agent is to use, because some are amazing and others are awful. Call them up and have a discussion about your thoughts on a budget of $x-$y. They will likely immediately get you into an MLS search. Look through it and see if it's something you want and can afford. 50% of your take home on housing a very high number. You will get some of that back annually on your tax refund, but that money is generally just oh right the house needs a new sewer line money. Expect your utilities to roughly double. It's not that your electric bill will double (it might, more sq ft, draftier windows, that hole you didn't know about behind the cabinet), but you also have to pay someone for water to drink, haul away your trash, accept your sewer waste, etc. The bank will approve you for a oh-thats-why-the-housing-crisis-happened amount of money. They are OK with you eating rice and beans. Call someone up and say you want to know what the pre-approval amount would be without a hard credit pull. When you do get an actual pre-approval give that piece of paper to your agent but otherwise tell them your actual budget. If your agent doesn't respect your wishes, fire them. That being said, you are saving at an amazing clip. Keep it up. Maybe see if there is a place where you could rent out a bedroom? Even at 50% average occupancy that might bring it down into a very manageable space. Go ahead and make a folder on your laptop with a sub-folder called "finances." Go to your bank(s) and download the last several months of statements, start saving pay stubs into this folder, etc. Give them friendly names like "BofA-Statement-Oct-2016.pdf". Keep this up monthly if you're serious about buying. You'll thank me later when your lender starts asking for it all. H110Hawk fucked around with this message at 00:30 on Jan 1, 2017 |
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Jan 1, 2017 00:25
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H110Hawk posted:That being said, you are saving at an amazing clip. Keep it up. It's quite possible the housing market in your neighborhood could tank while you own the house, leaving you underwater and unable to sell. And maybe out of a job, if other poo poo is also going on. That's the downside risk that you need to factor into your thinking. It's also questionable whether 10k is enough to backstop all the possible emergencies you could have with a 400k house.
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Jan 1, 2017 00:52
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10k is probably not enough as an emergency fund e: Well, it's a gamble. $10k might be fine, or you might move in and then have to replace the roof the next week. Standard advice is to budget 1% of the buying cost for routine annual maintenance, and that's meant to average out over several years. You need to add personal emergency expenses on top of that. Your first year might go fine, or you might suddenly have huge medical bills and an exploding water heater QuarkJets fucked around with this message at 03:21 on Jan 1, 2017 |
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Jan 1, 2017 02:03
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QuarkJets posted:10k is probably not enough as an emergency fund Do you mean replacement cost? For example, our home was $470k but the replacement cost is half that. I assume that works out much more normally in places without hilariously overpriced homes. $47,000/year is a lot. $20k/year is still a lot. At that rate I could have a whole new house every 10 years. Since you're a math nerd, it's realistically a few grand a year in actual out of pocket maintenance costs plus the amortized risk of failure of every individual component of the house plus what it can take out with it. For example are the pipes 60 year old galvanized? You're on borrowed time, but if they've been copper repiped you get ~50 years since install. Next is the sewer side, electrical, roof, random wood rot, it goes on and on. It's all risk. I would suggest saving at your amazing rate right now and re-evaluate in a years time while keeping an MLS search going. Then when the time is right you have everyone lined up and ready to go. Be up front with people about your plans. Anyone who snears at you never call them again. If they don't value that you value their time, they can gently caress right off. One day you might have a bag of money to give them, and right now you have word of mouth. H110Hawk fucked around with this message at 02:21 on Jan 1, 2017 |
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Jan 1, 2017 02:16
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I do not yet own a house but for me the biggest issue I see is being 25. Do you really want to be tied to your current area for the next 7+ years? Also, you are saving cash at such a great rate, is it worth losing that savings rate to buy in to a house? Why do you want or need a house?
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Jan 1, 2017 02:39
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H110Hawk posted:Do you mean replacement cost? No. The issue is that I typed 10% when I meant to type 1%. But that's 1% for just routine maintenance; longer-term stuff (roof replacemenet) needs to budgeted for specifically, and an emergency fund shouldn't just cover home repairs QuarkJets fucked around with this message at 03:23 on Jan 1, 2017 |
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Jan 1, 2017 03:21
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QuarkJets posted:No. The issue is that I typed 10% when I meant to type 1%. But that's 1% for just routine maintenance; longer-term stuff (roof replacemenet) needs to budgeted for specifically, and an emergency fund shouldn't just cover home repairs Ah, that makes a lot more sense. The most "fun" part is it might be a few hundred for a year or two, then $10k surprise the next!
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Jan 1, 2017 18:30
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Thank you for the advice, all! I can always count on SA to dissuade me from doing dumb things. slap me silly posted:Yes, and following up, saving at an amazing clip that you will be utterly unable to sustain if you buy a $400k house. If you are doing the math like most people, that 50% of your net you're budgeting for the mortgage is missing maintenance and repair savings. I definitely don't expect to be able to save more than a few hundred a month after the purchase, if that. Major repairs that I couldn't afford are what I am the most worried about--it seems like the most likely bad thing that could happen. I have a little flexibility in the form of relatively large semi-annual bonuses, but I definitely don't want to rely on that with no backup. And yes, if I lost my job in a lovely economy I would be utterly hosed. Moderately optimistic on that part given how well the company weathered 2008, but who knows what could happen. withoutclass posted:I do not yet own a house but for me the biggest issue I see is being 25. Do you really want to be tied to your current area for the next 7+ years? Also, you are saving cash at such a great rate, is it worth losing that savings rate to buy in to a house? Why do you want or need a house? I do plan on staying in the area for the foreseeable future--I love the city and don't want to move anywhere else. At a certain point of saving, I feel that there's really little point. Once your retirement and emergency funds are solid, why save for the sake of saving? 50k in the bank doesn't make me happy, but having a home would. I would like a house for a couple of the usual reasons: I don't feel secure in my rental, knowing my landlord can and probably will sell the building. I'm tired of the rental roulette of lovely neighbors sharing a wall or ceiling with you (I lost hard and am slowly going insane). Rent prices are rising even faster than house prices in many areas. And (I know this is a terrible reason, but it's very compelling when you feel it personally) I'm worried about losing out on the chance to buy while it's still possible. Portland's the last biggish west coast city that I could still maybe buy in. H110Hawk posted:I would suggest saving at your amazing rate right now and re-evaluate in a years time while keeping an MLS search going. Then when the time is right you have everyone lined up and ready to go. Be up front with people about your plans. Anyone who snears at you never call them again. If they don't value that you value their time, they can gently caress right off. One day you might have a bag of money to give them, and right now you have word of mouth. This seems like a good middle of the road option, and the one I think I'll take. My gut says I'm not ready, so holding the course and reevaluating at the end of the year seems the best, even if prices may move a lot higher.
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Jan 1, 2017 20:41
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Hydronium posted:This seems like a good middle of the road option, and the one I think I'll take. My gut says I'm not ready, so holding the course and reevaluating at the end of the year seems the best, even if prices may move a lot higher. Hello fellow Portlander! I just bought a house here, so I thought it might be useful to share my experience thus far. First off, I was in a fairly similar situation as you, with a few key differences. I wanted to buy for basically the same reasons as you (hate wall/ceiling neighbours and uncertain futures, and wanted to make sure I bought before I was priced out), but I was also renting a place that cost as much as my current mortgage (the rental market out here is crazy too, which factored into my decision to buy). My friend who was living with me at the rental is still living with me here and paying rent, but I made sure I could handle the mortgage on my own. I had saved a lot less than you currently have because I wanted to pay off all of my high interest student loans first, but I also bring home a bit more than you. So while my loan is kind of expensive due to the low down payment (I put down 3.5%), I snagged a very low fixed interest rate and the monthly payments work well for me, allowing me to continue to save a fair amount each month. I'm not saying you should do a low down payment option, just that it was kind of my only option and it was good for me. Plus, I had a decent amount left after closing, allowing me to handle unexpected costs. Of which there have plenty. Unexpected additional costs to do simple jobs, unexpected appliance purchases, plumbing issues, electrical issues. Basically, the hits keep coming, but because of my steady income level, I don't really have to worry about running out and not being able to do anything for months. However, an annoyance of these issues that's discussed less than the cost is the time. You have to be there or arrange for someone to be there when they do the repairs, or else risk setting out a key and letting strangers in your house (plus it's usually a good idea to keep an eye out to ensure that the work is being done properly and to learn from them). It's been one of the most stressful times of my life. That being said, sitting here in this living room, secure in the fact that no matter what happens to this house, I'm in control of making it right...I have no regrets. I have a few years on you, but honestly, I don't think you're too young, you just have to be confident you can handle it. I'm no better at this now than I would've been at 25, I just happen to be in the right financial place now. Now for some Portland-specific thoughts. I watched the market soar for three years before buying. I watched myself gradually be priced out of every neighbourhood west of 82nd. It was easy enough for me because I was already renting in outer NE and I wanted more property than most of the lots in close-in. But if you have your heart set on an inner neighbourhood, you're going to have to be ok with a terrible $/sq ft deal. I also found that getting a place in the right neighbourhood (for me) trumped a lot of my "must-haves" for the house/property itself. So these are all things to be juggled. However, as I started closing in on places this fall, there was a noticeable plateau in home prices. So I don't think there is quite the level of urgency that there was even a year ago. If you can continue saving at your current rate, waiting at least a year will probably be your best bet. But use the year wisely. Look as if you were buying, but don't get attached to any particular house (there's always another "dream house" popping up). Learn the market, drive/walk around potential neighbourhoods, get recommendations for realtors, mortgage brokers, tradespeople, inspectors (I have a great recommendation for this one if you need), etc. Also, it may take longer than you think, so have backup plans for the transition. I started shopping mortgage loans at the end of summer and started looking at houses in earnest in late September. I found a place incredibly quickly, it was vacant already (so no provisions for the current owners to stay - another thing to factor), and the sellers wanted a quick closing. I even got an appraiser super quickly (they say to budget 60 days to schedule one, but I was able to get one in 2 weeks). But that's when everything slowed down. My side took forever to get the loan finalized, then their side took forever to get the payoff finalized. I ended up getting the keys at the end of November. If you're renting, keep this in mind - you may have to budget for doubled up rent/mortgage payments, pay to break your lease, or stay with friends till things close with the new house.
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Jan 2, 2017 18:55
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Hydronium posted:What say you? Should I start approaching a lender and real estate agents, or should I wait until I have more down and feel a little less anxious? So I was pretty much exactly in your shoes a year ago. Same living situation, same city, same income, same type of job even. It sounds like you've got realistic expectations of how much this process is going to cost you (way more realistic than most people coming into this thread and definitely more realistic than most of your coworkers) which is good. The one thing you didn't mention is what price range you're actually looking at buying in. I ended up buying but at a lower price point (~300k) outside of the city proper where real estate values aren't inflated quite so much and I could have a shorter commute. If I was shooting for something in close-in (inside 82nd) SE or NE where 400k gets you a place that is in a decent area but still needs some work I definitely would have waited until I had more savings (something more in line with your 1 year target). I know everybody is saying home prices can only go up and up and up but trying to pin your decision on what home prices and loan rates are going to do in the next year is tough because the trends aren't actually that reliable.
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Jan 2, 2017 18:59
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Just made my first major fuckup as a homeowner - forgot to put my trash cans in the alley for the weekly pickup. Woke up to the sound of the truck driving away 
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Jan 2, 2017 21:52
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Apparently homeownership is going to redefine your idea of a "major fuckup".
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Jan 2, 2017 22:42
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Before buying a house in Oregon or Washington states, you should read and fully understand this new yorker article. Follow up on details if you like. And then seriously consider what an earthquake retrofit will cost for the houses you're considering, and also, what it will do to your lifestyle and job etc. if you have to literally move out of the state for six months after The Big One. People think of California as the Earthquake State because we have frequent, low-level quakes and then fairly frequent (like, every 10-20 years) large quakes; but we're a state that has built in preparation for them for almost 100 years now. The PNW are Earthquake states that don't experience frequent quakes: instead, the subducting Juan de Fuca plate likes to blow off a giant fuckoff quake in the 9.0 category about every 300 years, give or take a century. And these states have not been building in preparation for them until no earlier than about 1989, when geologists finally figured out for sure what was going on. So you have tons of masonry houses with basements in them that are utterly hosed, and worse, tons of infrastructure that is utterly hosed, when the big one hits; and of course, vast swathes of tsunami zone along the coast where millions of people are megafucked irrespective of their construction. And the last major Big One up there was about 300 years ago so you are absolutely due any year now, as mentioned in this more recent The Atlantic article: quote:There is a 17 to 20 percent chance that northern Oregon will be hit by a magnitude-8 quake in the next 50 years. To properly understand that statistic, do not assume you need to own a home for 50 years to face a 20 percent chance of being hosed: instead, consider it about a 0.4% each year of being hosed. By comparison, quote:In 2010 there were 362,100 residential fires in the USA. In total the fires caused $6.65 billion in damages. So, the average American homeowner is at a 0.28% risk annually of any sort of house fire causing an average of $18k of damage, and few homeowners would consider skipping on homeowners insurance (which covers much more than just fires, of course, but still). Meanwhile PNW homeowners are at close to double the risk of completely catastrophic damage from a major earthquake per year, but hardly anyone up there bothers with earthquake insurance or retrofitting their home to reduce the likely damage from the Big One. Leperflesh fucked around with this message at 22:52 on Jan 2, 2017 |
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Jan 2, 2017 22:48
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You should also read the responses from the UW seismologists about things like actual tsunami risk, if you're diving into the New Yorker article.
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Jan 3, 2017 00:19
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Lol if you don't have a separate explicit earthquake policy in the PNW.
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Jan 3, 2017 01:05
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Been in the US for the last year or so. Working 7 months. Permanent resident. Wife is American. I'm going to submit my Canadian T4 (W2 Equivalent.) and Canadian tax returns for my mortgage pre-approval application. I take it the lenders are going to  me?
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Jan 3, 2017 01:49
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^^^ I think they'd probably be fine with it, they're going to want some pay stubs and proof of work tooHEY NONG MAN posted:Lol if you don't have a separate explicit earthquake policy in the PNW. Countless legitimate claims get denied every time there's a big natural disaster no matter where it is (Katrina, Sandy, etc) so I can't really blame people for that
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Jan 3, 2017 02:15
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lol internet. posted:Been in the US for the last year or so. Working 7 months. Permanent resident. Wife is American. They might. For a car loan when I arrived on H-1B, they were totally uninterested in my Canadian financial history or credit rating.
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Jan 3, 2017 02:27
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Subjunctive posted:They might. For a car loan when I arrived on H-1B, they were totally uninterested in my Canadian financial history or credit rating. I got a 740 rating in the US for what it's worth. One loan offer said just send the documents. I guess I might be in the clear.
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Jan 3, 2017 05:21
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slap me silly posted:Apparently homeownership is going to redefine your idea of a "major fuckup". Maybe it will also help make my sarcasm more obvious to others. Leperflesh posted:Before buying a house in Oregon or Washington states, you should read and fully understand this new yorker article. Follow up on details if you like. And then seriously consider what an earthquake retrofit will cost for the houses you're considering, and also, what it will do to your lifestyle and job etc. if you have to literally move out of the state for six months after The Big One. Definitely information worth knowing, but like all else, you should compare the ongoing costs of insurance to the potential costs of repairs to your home. I don't think its a matter of homeowners "not bothering" - most people probably erroneously believe earthquakes to be covered under their standard policies. And others have either assessed their personal home earthquake risks, or just simply made the call that the cost to insure over a period of years or decades would be much higher than the cost of repairs. Plus, high deductibles (to the tune of tens of thousands of dollars) are getting more and more common. So that adds even more gray area to the cost/benefit analysis. http://komonews.com/news/consumer/earthquake-insurance-local-homeowners-play-the-odds
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Jan 3, 2017 05:27
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My plan is to live here in Florida until the next big quake levels most of the suburbs of Seattle, and then buy some cheap land with the remnants of a house on it. Check-mate, Mother Nature. 
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Jan 3, 2017 12:51
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There's also the extremely good option of just stopping reading the New Yorker and Harper's and then you won't feel terrible, guilty and worried all the time. Seriously, it's a huge quality life improvement you won't regret it at all.
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Jan 3, 2017 13:31
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MrYenko posted:My plan is to live here in Florida until the next big quake levels most of the suburbs of Seattle, and then buy some cheap land with the remnants of a house on it. Florida will be in the ocean before that happens though.
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Jan 3, 2017 14:05
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HEY NONG MAN posted:Florida will be in the ocean before that happens though. I'm putting everything on black and hoping to split the difference. Comedy option: House-boat.
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Jan 3, 2017 14:12
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If a disaster earthquake hits the PNW then so many people will be hosed that there will be federal assistance flowing in. The important thing would be having the savings to cover your expenses in the meantime.
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Jan 3, 2017 15:50
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Is the viaduct and new tunnel still an earthquake away from total collapse?
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Jan 3, 2017 15:59
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An interest rate related conundrum for you, I'd particularly value any views from fellow Brits. I've just 'reserved' a newbuild place that comes in at a touch under £400k, and have about 80k for a 20% downpayment. Asked my mortgage broker to take a look and see what options are for 2, 3 and 5 year fixed rates and she's come back with these: - 2 year Fixed Rate 1.59% with an arrangement fee of £499. Your mortgage payment over 25 years will be approximately £1,296 per month. 10% overpayments are allowed each year of the mortgage balance. - 3 year Fixed Rate at 2.19% with an arrangement fee of £999. Your mortgage payment over 25 years will be approximately £1,391 per month. 20% overpayments are allowed each year of the mortgage balance. - 5 year Fixed Rate at 2.29% with an arrangement fee of £999. Your mortgage payment over 25 years will be approximately £1,407 per month. Thanks to being a first time buyer and this being a new build place I can also take advantage of the goverment help-to-buy scheme and essentially take out a 5 year 0% interest loan for 20% of the property value. So that would be a mortgage of £240,000 and an LTV of 60%: - 2 year Fixed is currently 1.49% with an arrangement fee of £999. Your mortgage payment will be approximately £963 per month. - 5 year Fixed Rate at 2.55% with an arrangement fee of £999. Your monthly mortgage payment will be approximately £1,088 per month. Potentially overpaying the mortgage and having it go towards principal is fairly important for me, so I'll need to clarify that on the other options. However I've pretty much discounted the 3 year and 5 year (help to buy). So, financial wizards of A/T. Would a .1% drop in interest rates and the ability to (maybe) overpay my mortage by more every single month be worth the hassle of the help-to-buy scheme? Or alternatively, would a .7% increase in my interest rates and an extra £110 a month be worth locking it in for another three years given Brexit and its potential deflation, stagflation or Zimbabwean run-away hyperinflation implications? Be interested to hear your thoughts.
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Jan 3, 2017 18:51
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QuarkJets posted:Countless legitimate claims get denied every time there's a big natural disaster no matter where it is (Katrina, Sandy, etc) so I can't really blame people for that Insurance companies deny countless legitimate claims as a matter of course for all types of claims - it's part of their business model. That said, the idea that insurance simply won't pay for the covered damages is a popular myth. The large majority of legitimate claims are paid out, usually quickly and to the satisfaction of the claimant. Even earthquake insurance. Earthquake insurers (and other homeowner policies like flood) can diversify their books by selling coverage over different geographical areas to ensure that a single major disaster event doesn't wipe them out. When buying insurance, you could specifically look for major insurers that offer policies in many states if you're concerned. Drunk Tomato posted:Definitely information worth knowing, but like all else, you should compare the ongoing costs of insurance to the potential costs of repairs to your home. I don't think its a matter of homeowners "not bothering" - most people probably erroneously believe earthquakes to be covered under their standard policies. And others have either assessed their personal home earthquake risks, or just simply made the call that the cost to insure over a period of years or decades would be much higher than the cost of repairs. Of course. My own policy is specifically for catastrophic damage: I have a 15% deductible on ~$330k of coverage (my home is "worth" around $400k including the land, but the coverage is for rebuild cost, and I think that's a pretty reasonable estimate of what it'd cost to rebuild my pretty simple and straighforward single-story 1200 square foot 1958 stickbuilt house), so I'd need to suffer $50k worth of damages before my policy kicked in. But. Because of my high deductible, my policy is only $650 a year. And I live less than a quarter mile from the Concord fault, which is a tributary of the long-overdue Hayward fault system. And my house is on clay and alluvial deposits - that is, not bedrock, so it's more vulnerable. The point of my policy is not to cover me for minor damage after a smaller quake, which will be a pretty nasty thing for me to deal with. It's to cover me from actual total financial ruin if my house collapses in a major earthquake. The odds of a major quake in the bay area over the next 30 years are as high as 72%. A "major quake" is defined as anything 6.7 or higher, which is not high enough to guarantee catastrophic damage to my house, so this gets fuzzy quickly. But, if I guesstimate that there's only a 20% chance of making a significant claim - say, $100k or more - then $650 x 30 = $19,500 is my 30-year insurance cost and I'm in the black on that estimate. And of course, the point of insurance is not always to be "in the black." Quite often you pay more than you expect to receive, because it mitigates the small risk of a loss that would wipe you out completely. Health insurance rarely pays out as much in claims as you pay in, but boy is it nice to have if you get cancer or need a liver transplant or some other $100k+ medical problem. I pay for $200k in automotive liability insurance which is way way over the (laughably low) state minimums, but boy is it nice to have if you're involved in an accident where someone is seriously injured or dies, or, you hit a very expensive vehicle. Pryor on Fire posted:There's also the extremely good option of just stopping reading the New Yorker and Harper's and then you won't feel terrible, guilty and worried all the time. Seriously, it's a huge quality life improvement you won't regret it at all. I don't really read either of those magazines - they just happened to have good articles on this specific topic. So I'm not sure if this is intended as  or a backhanded swipe at liberalism  or if there's a genuine problem with their journalism. Subjunctive posted:You should also read the responses from the UW seismologists about things like actual tsunami risk, if you're diving into the New Yorker article. Link?
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Jan 3, 2017 19:24
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RockyB posted:An interest rate related conundrum for you, I'd particularly value any views from fellow Brits. These look entirely different than US loans. What happens to the rate at the expiration of 2/3/5 years? Why are there prepayment penalties? Can you not get a 25 year fixed loan with no prepayment penalties?
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Jan 3, 2017 20:53
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H110Hawk posted:These look entirely different than US loans. What happens to the rate at the expiration of 2/3/5 years? Why are there prepayment penalties? Can you not get a 25 year fixed loan with no prepayment penalties? I'm pretty sure you have to refinance at the end of the loan term. It's a 2 year loan amortized over 25, not a 25 year loan. After 2 years you have to pay the loan off... I think. Shits weird over there. You'd think it would keep their housing costs under control but nope.
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Jan 3, 2017 21:37
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Jealous Cow posted:I'm pretty sure you have to refinance at the end of the loan term. It's a 2 year loan amortized over 25, not a 25 year loan. After 2 years you have to pay the loan off... I think. Shits weird over there. You'd think it would keep their housing costs under control but nope. Canada's mortgages work the same way, also hasn't cooled housing prices.
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Jan 3, 2017 22:11
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The 25-30 year fixed rate mortgage without recourse or prepayment penalties is something of an aberration. Most non US countries and commercial mortgages in the US will be based on shorter terms with the same amortization, it just has a bullet or balloon payment at the end that either needs to be paid off or refinanced.
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Jan 3, 2017 23:11
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Yeah, to clarify then. You can generally either get a tracker mortgage which, y'know, tracks current interest rates. Or you can lock in a fix at a certain interest rate for a given number of years, after which which you automatically have to remortgage at whatever the current interest rates are. So the question is whether people think it might be better to lock in a 1.59% rate for 2 years, or 2.29% for 5. Honestly I'm a bit stunned if the US can actually give you a 25 year fixed rate. Especially given since the 1980s interest rates have gone from 16ish% down to 2.5%. Suppose that puts the emphasis of remortgaging on the consumer, but I can't see lenders exposing themselves to the risk of rates going up massively. The overpayment isn't 'pre-payment' as I'd consider it, rather it goes entirely towards principle. So you pay say £1,000 which includes your interest, then maybe another £500 on top which goes straight towards equity. There tends to be a limit on this because otherwise the lenders can see greatly reduced income from the loan. So at 10% I could stick £32,000 extra towards the principle in the first year, although it's sneakily worded so that decreases over time.
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Jan 4, 2017 01:55
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RockyB posted:Yeah, to clarify then. You can generally either get a tracker mortgage which, y'know, tracks current interest rates. Or you can lock in a fix at a certain interest rate for a given number of years, after which which you automatically have to remortgage at whatever the current interest rates are. So the question is whether people think it might be better to lock in a 1.59% rate for 2 years, or 2.29% for 5. Interesting. Thanks! In the USA "principle curtailment" aka paying extra money towards the principle is what that is known as, and if there is any kind of penalty/restriction associated with it it is known as a "pre-payment penalty." Our default suggested mortgage is a 30 year fixed rate, but it also costs thousands of dollars to setup or refinance. It seems like a hassle to have to deal with paying an extra £500-1000 every 2-5 years in what is effectively interest on your mortgage.
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Jan 4, 2017 02:02
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The 30 year fixed mortgage is one of the greatest things about the  - why should a homeowner have interest rate exposure? Also gently caress ARMs.
Bozart fucked around with this message at 02:06 on Jan 4, 2017 |
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Jan 4, 2017 02:04
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I suppose the US has government backed lenders though, which I don't think anyone else has. I can't imagine most commercial lenders agreeing to a 30 year loan where you might have a return 1/5th the size of a bog standard savings account, and people might pay it off early to increase your potential downside even more. 30 year US treasury bond at 2% anyone? You also don't have to refinance after the fixed rate period but generally you'll get dropped onto a tracker which is a couple of percent over the base rate if you don't, so it's normally worth the £500-1000. RockyB fucked around with this message at 02:29 on Jan 4, 2017 |
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Jan 4, 2017 02:25
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RockyB posted:I suppose the US has government backed lenders though, which I don't think anyone else has. I can't imagine most commercial lenders agreeing to a 30 year loan where you might have a return 1/5th the size of a bog standard savings account, and people might pay it off early to increase your potential downside even more. 30 year US treasury bond at 2% anyone? Canada has government backed mortgages too, and no 30-year mortgage terms.
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Jan 4, 2017 02:50
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A US lender can offer a 30-year fixed because they can lock in their own exposure risk in a multitude of ways, from selling bonds to packaging and reselling the debt as mortgage-backed securities. Also, I don't know the statistics but I think most borrowers never pay off the full loan over a full 30 years, they live in the house for a while and then resell it. And of course, in the US it's totally legal for the same bank offering mortgages to be a bank that offers consumer credit cards, student loans, car loans, and other securities that adjust with inflation. A fixed-rate mortgage offered to individuals with good credit who have a strong disincentive to defaulting may cost them if rates rise, but it's still a very safe return, and they have all those other (riskier but more rewarding) avenues for inflation-proof revenues to pay off if rates and inflation both go up. I honestly don't know why there aren't banks offering 30-year fixed in Canada and the UK. They'd have a ridiculous competitive advantage - I mean, why would any home buyer ever take one of those lovely 3-year ARMs if they could get a 30-year fixed for just a point or two more? I have to imagine there is some regulatory situation that outright prevents any bank from doing it.
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Jan 4, 2017 03:01
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Well it is a bit complicated. Current 30 year fixed rates are ~4%. In the US banks don't hold onto their loan usually. Fannie Mae and Freddie Mac buy mortgages from them, combine them, insure them, and then resell them. (Fannie and Freddie are government sponsored enterprises and have some restrictions on how they operate:quote:As a Government Sponsored Enterprise, or GSE, Fannie Mae is compelled by law to provide liquidity to mortgage originators in all economic conditions. It must legally ignore adverse market conditions which appear to be unprofitable. If there are loans available for purchase that meet its predetermined underwriting standards, it must purchase them if no other buyers are available. Due to the size, scale, and scope of the United States single-family residential and commercial residential markets, market participants viewed Fannie Mae corporate debt as having a very high probability of being repaid. Fannie Mae is able to borrow very inexpensively in the debt markets as a consequence of market perception. There usually exists a large difference between the rate it can borrow at and the rate it can 'lend' at. This was called "The big, fat gap" by Alan Greenspan. They did receive a bailout by the US government but they have since paid back more than the amount they were bailed... into? Also those loans go everywhere once they are securitized. Same thing in the rest of the world, but Fannie and Freddie were set up in part to encourage those fixed rate mortgages so they buy a lot of them.
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Jan 4, 2017 03:14
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