Mortgage advice deja vu

[Barrister]

But the part you missed is how there is nothing wrong with the terms we use.  Saying that our mortgages have some similarities to an ARM is NOT the same as saying they are not fixed term mortgages.

Is there anything wrong with saying that your mortgages are not "true fixed rate mortgages"?

Yes.  When you put the word "true" in there.  They are "true" fixed term mortgages.  They are not a fixed term mortgage like you are used to, but there is nothing "false" about the terminology.

[DGuller]

Yes.  When you put the word "true" in there.  They are "true" fixed term mortgages.  They are not a fixed term mortgage like you are used to, but there is nothing "false" about the terminology.

In that case I'm going to side with Wiki, which describes the Canadian mortgages as exactly that.  While I realize that Wiki is not fool-proof, when it comes to definitions about well-traveled topics such as mortgages, the burden is on the guy who contradicts it to show why it's wrong. 

In addition to that, I also showed by reductio ad absurdum how some hypothetical mortgage (or more precisely 360 of them) which fit the Canadian definition of fixed rate would in effect be far more variable to the homeowner than any actual variable rate mortgage.  When you can easily use the terminology to arrive at absurd results, it's usually an indication that the terminology used is not very robust.

Regardless, while I by no means will concede this point, I also don't want to belabor it.  The analytic aspect of mortgages interests me much more than the terminology.

[Barrister]

I'm done.  You're a jackass.

[DGuller]

I'm done.  You're a jackass.

Wow, I didn't know Canadians had such a strong national pride about their mortgage terminology.  I really, really do not understand why this discussion makes several normally reasonable posters with significantly above average intelligence froth at their mouths and completely refuse to reason. 

[sbr]

I'm done.  You're a jackass.

Wow, I didn't know Canadians had such a strong national pride about their mortgage terminology.  I really, really do not understand why this discussion makes several normally reasonable posters with significantly above average intelligence froth at their mouths and completely refuse to reason. 

You are being absurd.  I was silently with you the first few pages but now you have lost me.

Who gives a shit?  They call small pieces of ham "bacon".  They call a 5 year loan for a portion of the total value a "fixed mortgage"; as long as everyone understands, which I think we all do by now, who cares whether they call it a fixed mortgage or a cinnamon roll?

[Ed Anger]

Is it a candy or a sweet?

[Baron von Schtinkenbutt]

As I understand it part of the problem in the melt down in the American system is that people were tied into adjustable rate mortgages that they could not afford when the rate was adjusted.  In Canada that kind of problem is reduced in part because of this flexibility to amortization periods after the fixed rate mortgage terms end.

To that point, the people who got bulldozed by these ARMs were encouraged to take loans that were much larger than they could afford by having ridiculously low teaser rates dangled before them.  In most cases these loans were 30-year amortizations to begin with, and that first adjustment was within 1-3 years of the loan initiation; a re-amortization would have done nothing.  There was nothing stopping these people from refinancing with another lender, except that they borrowed way more than they could really afford, and that is the reason the loans failed.

[Baron von Schtinkenbutt]

Who gives a shit?  They call small pieces of ham "bacon".  They call a 5 year loan for a portion of the total value a "fixed mortgage"; as long as everyone understands, which I think we all do by now, who cares whether they call it a fixed mortgage or a cinnamon roll?

The loan is for the full amount borrowed; it just has an amortization longer than the agreement.  At the end of the mortgage the lendee needs to either negotiate a new mortgage or pay off the remaining balance of the loan.  The life of the loan is the length of the mortgage term; its just a loan that will not zero out at the end of the term unless the amortization period happens to be the same as the term.

[crazy canuck]

To that point, the people who got bulldozed by these ARMs were encouraged to take loans that were much larger than they could afford by having ridiculously low teaser rates dangled before them.  In most cases these loans were 30-year amortizations to begin with, and that first adjustment was within 1-3 years of the loan initiation; a re-amortization would have done nothing.  There was nothing stopping these people from refinancing with another lender, except that they borrowed way more than they could really afford, and that is the reason the loans failed.

why didnt they borrow with another lender with another "teaser" rate?

[Baron von Schtinkenbutt]

why didnt they borrow with another lender with another "teaser" rate?

Usually they got the loan in the first place because somebody, usually an unscrupulous middleman, cooked their original application to get them a loan they should have never been approved for in the first place.  Therefore, when people tried to refinance no one would touch them.

There is also the problem of falling house values.  Some of these people bought houses at greatly inflated prices and ended up upside down on their loans when the housing market tanked.  These people also couldn't refinance because no bank was willing to loan them more than their property was currently worth.  In many of these latter cases the people who bought the house could afford it at the time, but one or more incomes were reduced or disappeared during the recession and made the loan unaffordable.

[grumbler]

why didnt they borrow with another lender with another "teaser" rate?

There is an up-front fee associated with originating a new mortgage, that ranges from 1% to 4% (maybe more, but I haven't seen it) of the total amount borrowed.   This is the penalty for switching mortgages, and amounts generally to some thousands of dollars.  A teaser rate even 3% below what they would be paying otherwise doesn't necessarily pay off before the teaser rate expires.

[grumbler]

why didnt they borrow with another lender with another "teaser" rate?

Usually they got the loan in the first place because somebody, usually an unscrupulous middleman, cooked their original application to get them a loan they should have never been approved for in the first place.  Therefore, when people tried to refinance no one would touch them.

There is also the problem of falling house values.  Some of these people bought houses at greatly inflated prices and ended up upside down on their loans when the housing market tanked.  These people also couldn't refinance because no bank was willing to loan them more than their property was currently worth.  In many of these latter cases the people who bought the house could afford it at the time, but one or more incomes were reduced or disappeared during the recession and made the loan unaffordable.

I think the second element here is far, far more important than the first.  Yeah, some people qualified for mortgages who should not have, but I think the economic downturn (with associated drop in home values) was the bigger problem.

[DGuller]

You are being absurd.  I was silently with you the first few pages but now you have lost me.

Who gives a shit?  They call small pieces of ham "bacon".  They call a 5 year loan for a portion of the total value a "fixed mortgage"; as long as everyone understands, which I think we all do by now, who cares whether they call it a fixed mortgage or a cinnamon roll?

Maybe the difference is that I view terms as part of technical language, not as part of a language dialect that's part of a cherished culture.  I view them as an analyst, not as American trying to be a mortgage term imperialist. 

In any case, I'm not stressing it anymore either, but I"m not going to back away from the notion that it's not a robust term and the like as it's used in Canada, even if a couple of posters here flip out for some unknown reason.