mxt_77

7 years is the longest term?!! Does that mean that the payments are scheduled such that the principal will be paid in full within 7 years, or does it mean that at the end of 7 years there is effectively a "balloon payment" that you must pay (or refinance the remaining principal with a new mortgage)?

In the US, most primary mortgages have a 15 or 30 year term, and payments are scheduled such that the principal will be paid off by the end of the term. However, my secondary mortgage had a 15 year term, but the payments were scheduled such that I would've had a balloon payment scheduled at the end of that term if I had made the scheduled payments.

Chris S

I believe the OP is in MN, which last I heard is still in the US.

30 yr. mortgages are the norm here.

second2none

Just looked at 30 year refi's and saw 4.25, wow!

Chris S

No worries here, housing prices have remained fairly stable in Austin, and I have 45% equity. My house has dropped $1,000 in value over the last 30 days per Zillow.

second2none

I know what you mean. Depends on the area definitely! My boss' home which is in a nice area of Katy has dropped 15 to 20k. He's looking to refi though since he has a good bit of equity like yourself.

QUIKAG

I'm working on a 5% 30 year fixed mortgage with a total refi cost of $1200. It's a special program Bank of America has going for some clients. I'm just waiting for the rate to hit 5%, they are checking daily for me.

s2kobsession

OK, i'm really confused.
In Canada, we can amortize a mortgage (length of time in which your mortgage is completely paid off) up to 35 years. However, we can only lock in an interest rate for a maximum length of 7 years before having to re-negotiate.

Keep in mind that your amortization will not change unless you want it to. But, you will sign for a new term and a new interest rate after the 7 year term.

So... assuming you begin with a mortgage of 200K amortized over 35 years.
First term is 7years at 5% (at the end you have 28 years remaining until you own your home free and clear)
Second term you decide to go for a 3 year fixed rate. (at end 25 years remain)
Then you do 5 consecutive 5yr fixed rate terms. At the end your amortization is 0 (meaning you owe no money to your mortgage lender and the house is completely owned by you).

I find it very very difficult to believe that any lender will guarantee a set interest rate for the next 30 years on anything. This is just ludacris.

So did I explain where i'm coming from a little better? Is the US completely different than Canada with respect to mortgages?

martha

s2kobsession -- yes you really can lock in a fixed rate for 30 years in the U.S. It was considered the normal thing to do until the ARM's became the sexy tool to use in the late 70's or early 80's. If everyone had locked in fixed rates, we wouldn't be looking at the total collapse of the housing market now because those that couldn't afford the fixed rates wouldn't have been given mortgages. That is, of course, my humble opinion.

As to why a lender would guarantee a set interest rate for 30 yrs on anything -- I assume they don't expect you to actually keep the house for the full 30 yr. period.

mxt_77

That's interesting that Canada generally does it differently. From a lender's perspective, Canada's method definitely makes more sense. But, as a borrower, I'm definitely glad I was able to lock in my relatively low rate for the full amount of time that it will take me to pay off my principal. It would seem much more risky to amortize my loan over a 30 year period, but only lock in my interest rate for 7 years. You'd be wagering that you'll still be able to get a good interest rate 7 years from now (or that you'll be able to afford higher payments if the rate goes up). That sounds a lot like an ARM to me.

Chris S

At least in the not too distant pasts, mortgages were usually securitized and sold to investors. These mortgage-backed securities were often structured to be relatively safe since the riskiest tranches were retained by the issuer, and they could be backed by L/C's for liquidity and credit enhancement.

People and institutions buy long term US Treasury bonds all the time, so why wouldn't they also buy similar duration mortgage-backed securities w/ a higher yield? (forgetting about recent events, back when everything was hunky dory)

Even if retained on balance sheet, the underlying interest rate risk can be hedged...maybe one day Canada will learn about such things.

Here in the US, you can even get 40 year fixed rate mortgages!