Half of americans can’t afford their house

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So what exactly are your american residential mortgage rates these days?
Here in Canada, the typical home mortgage is between 1.99% and 2.99%.
Your US rates are confusing, because unlike here in Canada (where we do have a single advertised rate) you have a bunch of other fees and "points" tacked on which makes it less clear what your actual "all-in" rate is, and also makes it hard to compare mortgages from bank to bank.
But yes, just recently some financial instututions here in Canada began offering 1.99% mortgages (3 year fixed term I think). That's the entire rate - no extra junk thrown in on top. If you can pay 20% down, then no mortgage insurance required (by law). Minimum down payment is 5% (by law). Mortgage insurance will cost you from 3.3% of the mortgage amount (if your downpayment is the minimum 5%) to 1.25% (if the downpayment is just under 20%). Which means on a $200k house, with downpayment of 5% ($10k) the total insurance cost (regardless of mortgage term) is about $6k, and that falls to under $3k with a downpayment of 20% ($40k).
========================================== Half of Americans can’t afford their house June 4, 2014
As the housing market slowly recovers, a majority of homeowners and renters are finding it hard to meet rising rents and mortgage payments, new research finds.
Over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years, according to the “How Housing Matters Survey,” which was commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation and carried out by Hart Research Associates. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.
“Affordability issues are real and a major hurdle,” says Lawrence Yun, chief economist at the National Association of Realtors, an industry group. Home prices have increased 20% over the past two years while wages have barely gone up, he says. “Only by adding more new supply, via housing starts, can home prices be tamed,” Yun adds. In fact, construction of housing units has averaged around 1.5 million a year for the past five decades, he says, but it’s likely to be less than 1 million in 2014.
What’s more, at least 15% of American homeowners (or residents of 78 counties across the country) were living in housing markets where the monthly mortgage payment on a median-priced home requires more than 30% of the monthly median household income — long considered the maximum for rent/mortgage repayments. Housing costs above that threshold are “unaffordable by historic standards,” says Daren Blomquist, vice president at real estate data firm RealtyTrac. In New York county/Manhattan, mortgage payments represent 77% of the median income and in San Francisco County represents 70%.
----------- Also see: Why the price of a new home is rising http://www.marketwatch.com/story/home-builders-see-low-lot-supply-rising-prices-2014-06-03 -----------
Although mortgage rates are still quite low, down payments, poor credit and tighter lending standards remain three of the biggest hurdles for buying a home, especially among young people, Blomquist says. “The slow jobs recovery for young adults has made it harder for them to save and to get a mortgage.” Some 84% of young people are delaying major life decisions due to the poor economy, according to a 2013 survey by Generation Opportunity, a nonprofit think tank based in Arlington, Va.
Some people also appear to be cooling on one facet of the American dream. About 43% of respondents in the “How Housing Matters Survey” say owning a home is no longer “an excellent long-term investment and one of the best ways for people to build wealth and assets,” and over half say buying a home has become less appealing. Although 70% of renters aspire to own a home, some 58% believe that “renters can be just as successful as owners at achieving the American dream.”
----------- Also see: Why your rent is so damn high http://www.marketwatch.com/story/more-americans-pay-50-of-their-income-in-rent-2013-12-10 -----------
But they’re still suffering the aftershocks of the property bust, experts say. In the years after the recession of 2008, more than 7.5 million homeowners lost their home to foreclosure or short sale and about 9 million more homeowners are still underwater and owe more than their property is worth, Blomquist says. “If one looks at the last seven years as a predictor of housing market behavior in the future, it certainly should give one pause about whether buying a home is a good investment or not,” he adds.
That’s not necessarily a bad thing, says Stuart Gabriel, director of UCLA’s Richard S. Ziman Center for Real Estate. “From a policy perspective, we overshot in prescribing homeownership too often and to those who would have benefited more from other housing solutions,” he says. Homeownership rates hit 64.8% in April, the lowest since 64.7% in the second quarter of 1995, according to the Census Bureau. “It’s wise to approach homeownership with more skepticism and more trepidation,” he says.
The good news: Rising prices have lifted millions of homeowners out of negative equity. Since the lowest point in the housing market crash, rising prices have led to an additional $4 trillion in housing equity, going to existing homeowners, smart investors and those who can afford to buy, Yun says. Home prices, including distressed sales, increased 10.5% in April 2014 year-over-year, according to the latest survey from mortgage-data firm CoreLogic, representing the 26th consecutive month of annual increases in home prices.
http://www.marketwatch.com/story/over-50-of-americans-struggle-with-home-affordability-2014-06-03
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There is supposed to be an Annual Percentage Rate that includes all the interest and points. They can't practically advertise that because interest rates vary with amount of down payment and credit report.
Don't mortgage rates vary with "good credit" vs. "bad credit" in Canada?

You have *THREE YEAR* mortgages? On a $200k house with $10k down, that means payments of $5,277.00 *just for the principal*. Very few people are going to be able to afford that. (And if they can, do they really need a mortgage at all?) Or, if it has a big payment at the end, you're placing yourself between a rock and a hard place if you're forced to refinance after 3 years not knowing if you can (at any interest rate, and you'll be in big trouble if you are now "upside-down" at the end of 3 years).
In the USA, it's more common to have 15-year or 30-year terms for fixed-rate mortgages.
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snipped-for-privacy@burditt.org (Gordon Burditt) wrote:

More likely HG has nary a clue about what he is talking about.

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Gordon Burditt wrote:

$200K house or $200K mortgage? Where the hell is 200K house? No mortgage here. I just have LOC which I don't use. Just in case for the unexpected, I arranged it long ago.
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On 6/4/2014 3:17 PM, Kurt Ullman wrote:

Nah, it's that the Canadian mortgage market differs substantially from the US market in a few ways. For starters, the mortgage is tied to the borrower, not the property, so the loan is portable. If the mortgage holder wants to buy a different house, the mortgaged is carried over to the new property. Canadian mortgages are five-year mortgages that are amortized over 25 years, after which the borrower can pay off the loan or roll over the mortgage for the remaining balance. That of course exposes the borrower to the risk of the interest rates having gone up in the interim. Conversely, the prepayment penalties are very steep, to discourage borrowers from taking advantage of a decline in rates. And Canadian homeowners can't deduct their mortgage interest. The Canadian system also requires banks to retain their loans, not sell them off to a third party. So their system puts more financial responsibility on the borrower, but also makes the originating lender responsible for the loan if it goes bad. Which is a major reason why their housing/mortgage market has remained stable while we went through a bubble and a crash.
Longer term mortgages provide payment stability to the home buyers. On the other hand, in the US the average length of home ownership is only seven years, so most of the time buyers aren't in it for the full 30 years anyway.
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A "3-year ARM" that guarantees renewability for 25-30 years but could up the interest rate every 3 years is a risk, but not an extreme risk. But that doesn't sound like a 3-year mortgage to me.
A "3-year ARM" that has a big balloon payment at the end, is *NOT* renewable, and requires you to qualify (not "re-qualify" - you're starting over from scratch) every 3 years seems to me to be an insane risk. Get sick or lose your job at the wrong time, instant homelessness.

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That sounds really good. Trouble is, you have to go to Canada to get it.
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And most people would rather pay twice that rate to be able to live in the U.S.
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On 6/4/2014 10:27 AM, CRNG wrote:

In the U.S. the mortgage lending business is collapsing because such a high percentage of homeowners refinanced when rates were extremely low and are out of the refi market, probably forever. I.e. I refinanced at 2.625%/2.625%. No points, no fees, they even paid for the appraisal. So 2.99% is not an abnormally low rate, it's only about 0.5% less than the present rate that someone with good credit can get in the U.S. if they shop around for a loan. If they just walk into their bank and apply the rate will be higher and there are people like that.
The other problem for mortgage companies in the U.S. is that so many houses are being sold to cash buyers so there isn't any loan. This is also a problem for non-cash buyers because sellers will accept a cash offer if the offer is the same amount as an offer where the buyer is getting a loan.
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On 6/5/2014 11:16 AM, sms wrote:

Oh, yes it is. It's very nearly the lowest rate in US recorded history, which is 2.66% . Mortgage rates from the 1920s to the 1960s averaged 6%, rising to about 7.5% by the early 1970s. In the late 1970s rising inflation combined with the OPEC price shock and its ripple effect through the markets pushed mortgage interest rates into the double digits, where, with very brief exceptions, they remained until late in 1990.
If your home mortgage rate is 5% or less, congratulate yourself on paying less than your parents and grandparents did. If it's under 4%, buy yourself a beer. Historically, that is an outrageously low rate for a home mortgage.
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On 6/5/2014 9:59 AM, Moe DeLoughan wrote:

No, what I'm saying is that compared to the current 1.99-2.99% rate in Canada (that the poster claimed), the present rate in the U.S. is not that much higher. A 15 year fixed today is about 3.0%/3.01% (for those unfamiliar with the way rates have to be quoted, the first number is the rate, the second number is the rate if you factor in any points and fees).
The bad thing in the U.S. is that since the rates paid by borrowers are so low, the interest rates on savings accounts are also extremely low.
Much better to invest your money in real estate in an area that's not likely to crash.
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http://business.financialpost.com/2014/05/13/investors-group-mortgage-rate-canada/
says:
<<Investors Group rolls out 1.99% variable rate mortgage If you thought mortgage rates could not go any lower, you were wrong.
Investors Group is rocking the mortgage world with what appears to be the deepest discount in Canadian history on a floating rate loan, offering a deal that takes an effective mortgage rate down to 1.99%.
The company is now offering 101 basis points or 1.01 percentage points off its prime rate of 3% for a variable rate mortgage. Consumers can get the deal for a 36-month term which is shorter than the length offered by some of the major banks on the deep discounted five-year fixed rate mortgage which has dropped to around 3% - a controversial level that once drew the wrath of the department of finance.
"We haven't seen a rate like this from a lender," said Rob McLister, founder of www.ratespy.com., referring to the steep discount.
The offer from Investors Group is not available from brokers and is coming from the company's own sources, designed to make a major splash in the marketplace.>>
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On 6/4/2014 4:54 PM, Robert Green wrote:

you pay a lot of refinance charges not related to the mortgage percentage. These costs can be considerable and may be a major source of profits to the mortgage holder.
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Frank wrote:

In U.S. still your mortgage intewreste payment is tax deductible? Never up here. Refinancing has no fees or charges unless we switch lender.
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On 6/5/2014 12:48 PM, Tony Hwang wrote:

It is still deductible, but not for everyone, depending on circumstances. We have a "standard deduction" that is 10% of your income. Everyone gets to deduct 10% no matter what you have to itemize. If the interest paid is low and you don't have more than 10% in itemized deductions, you don't gain any advantage. In the early years when your income is probably lower and the mortgage payments are mostly interest is when it is a big help on taxes.
Re-Fi fees can be from near zero to a few thousand dollars. Depends on the financial institution. Some want to get their paperwork cost paid for up front, then they sell the mortgage and are done. Others will not charge up fron, but will service the mortgage long term and make their money over time.
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On 6/5/2014 10:36 AM, Ed Pawlowski wrote:
<snip>

The last re-fi we did, last year, the broker I went with was zero fees, and has the lowerst rates, and they sold the loan within a year. The broker, or bank, makes their money from the spread between the wholesale rate and the retail rate, as well as from any fees they can charge or pass on. Sometimes it's worth paying points to bring the rate down but often it's better to go for a zero point loan. I would have paid points to bring the 2.625% rate down but the savings would not have been worth it.
The least expensive choice of a broker may not be the easiest re-fi in terms of the level of personal support you receive, but IMVAIO it's worth dealing with that lack of personal support in exchange for the long-term benefits of a lower rate. A high-volume broker with efficient systems in place can process loans very quickly and offer lower rates.
A half point spread between wholesale and retail, on a $400K loan is $2000, enough to subsidize all the fees and the appraisal and still make $1200-1500 or so on the re-fi. Low value loans often cost more because the lender makes less money from the spread. A good loan processor working with a well-qualified borrower that has their act together can do a loan in about three hours (sum total of time). I was e-mailing PDFs of documents minutes after they requested them.
The big problem with lenders seems to be that they always seem to ask for one more document just when you think you're done with sending documents. The underwriter always seems to find something wrong with the loan processor's package that requires additional documentation.
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On 6/5/2014 12:48 PM, Tony Hwang wrote:

Others have correctly stated that it is a tax deduction, i.e. not taxable. Tax deductions for other interest payments were done away with years ago. I believe one of my sons took out a homeowners loan to pay off his college loans and increased his home mortgage to get the deduction.
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Eh, what's 2% among friends :)
Those high rates weren't all bad as long as you weren't a borrower; if you were a lender, they were golden. I had some tax free bonds paying 13%; unfortunately, they were callable and called they were but I got 2-3 years out of them first.
One answer for the high mortgage rates was to extend the term. In Japan, they were writing 150 year mortgages...daddy's gift to future generations.
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No, not deductible from tax, deductible from income upon which tax is figured.
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sms wrote:

Again you're wrong.
When you consider that your Fed bank rate is 0.25% (the smallest positive amount it can be) while in Canada the BoC rate is 1%, all Canadian borrowing rates should be a full 1% higher than US rates.
Yet we have standard 15-year rates at 3% and promo 3-year term rates for 2%.
And our rates are "all in". None of the bullshit extra fees and "points" that are tacked on to your mortgage costs (what the hell are points anyways?).

Bullshit points and fees. Our system is so much more "consumer-friendly" than yours. None of those bullshit fees and points. Retail simplicity and transparency at the banking level.
And credit scores? It's practically unheard of up here in Canada. Ask any Canadian what their credit score is, and they'll just give you a blank stare. Institutional robery at every financial level is what you have in the US.
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