Being an owner means you don’t have the risk of future rent increases...
That is true, but as far as I can tell, rent increases don’t follow soaring house prices during real estate booms. Rather, the price to rent ratio tends to go out of whack. (Check out these graphs—I can’t vouch for the accuracy of their numbers, but they are consistent with what I observe on the ground. Since I’ve been renting my current house, my rent hasn’t gone up by a single cent, not even to compensate for inflation, while the house prices where I live have gone up by something like 40%.)
Moreover, the standard ways in which mortgages are done leave one exposed to the risk of future interest rates increasing, and they can go up much faster and higher than rent. (And as far as I can tell, one must pay a huge premium to get a permanent fixed rate and avoid playing this financial equivalent of Russian roulette.)
In the US, the large majority of mortgages are fixed rate. Until about 10 years ago, virtually all were. I think mortgages are a lot more popular in the US than in Europe. I’m a bit surprised that fixed rate mortgages haven’t spread into Canada simply by proximity. Maybe they’re propped up by Fannie Mae.
I have no idea what the ultimate reasons for it are, but in Canada, I don’t think it’s even possible to fix the rate for more than ten years. When Canadians speak of “fixed rate,” they typically mean fixing it for only five years or so.
All Canadian banks offer up to 10-year fixed rate terms, none do longer. “A typical mortgage in Canada has a 5-year term with a 25-year amortization period.” Not sure what is so scary about that...
That is true, but as far as I can tell, rent increases don’t follow soaring house prices during real estate booms. Rather, the price to rent ratio tends to go out of whack. (Check out these graphs—I can’t vouch for the accuracy of their numbers, but they are consistent with what I observe on the ground. Since I’ve been renting my current house, my rent hasn’t gone up by a single cent, not even to compensate for inflation, while the house prices where I live have gone up by something like 40%.)
Moreover, the standard ways in which mortgages are done leave one exposed to the risk of future interest rates increasing, and they can go up much faster and higher than rent. (And as far as I can tell, one must pay a huge premium to get a permanent fixed rate and avoid playing this financial equivalent of Russian roulette.)
In the US, the large majority of mortgages are fixed rate. Until about 10 years ago, virtually all were. I think mortgages are a lot more popular in the US than in Europe. I’m a bit surprised that fixed rate mortgages haven’t spread into Canada simply by proximity. Maybe they’re propped up by Fannie Mae.
I have no idea what the ultimate reasons for it are, but in Canada, I don’t think it’s even possible to fix the rate for more than ten years. When Canadians speak of “fixed rate,” they typically mean fixing it for only five years or so.
Wow. Yeah, signing up for a mortgage I expected to pay off over thirty years would frighten me with that arrangement.
All Canadian banks offer up to 10-year fixed rate terms, none do longer. “A typical mortgage in Canada has a 5-year term with a 25-year amortization period.” Not sure what is so scary about that...