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The Case Against 30-Year Mortgages

(www.wsj.com)
13 points paulpauper | 11 comments | 11 Oct 25 16:42 UTC | HN request time: 0.234s | source | bottom
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jstanley ◴[11 Oct 25 17:01 UTC] No.45550727[source]▶
This isn't about 30-year mortgages in the general case, this is about the US specifically, where a fixed-rate 30-year mortgage is typical, with a good rate and no early repayment penalty.

And yes it's insane, because if rates go up you leave it alone and if rates go down you remortgage at a lower rate.

replies(2): >>45550744 #>>45550787 #
1. orochimaaru ◴[11 Oct 25 17:03 UTC] No.45550744[source]▶
Why is that insane? It’s good for the consumer, no?
replies(2): >>45550768 #>>45550786 #
2. appreciatorBus ◴[11 Oct 25 17:06 UTC] No.45550768[source]▶
Not all consumers are homeowners. Something that is only good for one portion of the public is usually paid for by the other portion.
3. jstanley ◴[11 Oct 25 17:07 UTC] No.45550786[source]▶
It's insane because why would you offer such a product? You're giving the customer a free bet on interest rates.
replies(5): >>45550826 #>>45551015 #>>45551056 #>>45551612 #>>45553256 #
4. verall ◴[11 Oct 25 17:12 UTC] No.45550826[source]▶
Because the government is interested in subsidizing residential property ownership.

Why would healthcare be free? Who would offer such a product? Because some governments are interested in subsidizing such things.

replies(1): >>45551137 #
5. techblueberry ◴[11 Oct 25 17:33 UTC] No.45551015[source]▶
Free bet? You have to pay to refinance.
replies(2): >>45551139 #>>45553118 #
6. daft_pink ◴[11 Oct 25 17:38 UTC] No.45551056[source]▶
At the end of the day, they make money on the interest. Supply meets demand.
7. jstanley ◴[11 Oct 25 17:49 UTC] No.45551137{3}[source]▶
> the government is interested in subsidizing residential property ownership.

As an aside: that doesn't work, it just makes houses more expensive.

replies(1): >>45551840 #
8. jstanley ◴[11 Oct 25 17:50 UTC] No.45551139{3}[source]▶
Thanks, I didn't know that.
9. pqtyw ◴[11 Oct 25 19:15 UTC] No.45551840{4}[source]▶
Plenty of places don't have 30 year mortgages, variable rates might even be standard there and real-estate is still unaffordable. Until Covid housing was actually quite cheap in the US relative to income compared to many other Western countries. It still relatively is, just compare major US and Canadian cities, the gap is huge.
10. orochimaaru ◴[11 Oct 25 22:13 UTC] No.45553118{3}[source]▶
Not a whole lot. Also, if you have a generous enough mortgage agent they will assume the cost of the refi. I’ve done at least 2 refi’s in the past at $0.
11. uqual ◴[11 Oct 25 22:37 UTC] No.45553256[source]▶
A lender never (intentionally) gives anyone anything for "free". This is why ARMs often have lower interest rates than fixed 30 year mortgages - the risk to the lender from rising interest rates is lower with ARMs so lenders generally accept a lower interest rate on ARMs.

Both sides are making a bet on future interest rates and alternative investment returns - with one (the borrower) paying extra for an "opt out early" option for which the lender assumes the risk.

It's a bit like the borrower is buying a long term put or call option from the lender which the borrower is free to exercise at any time or to let expire but the lender can't get out of (they, of course, can always sell the mortgage - but perhaps at a loss in some economic climates due to past and expected future interest rate declines and/or changes in default risk due, for example, to a recession or depression).