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Old 10-15-2008, 01:02 PM
 
Location: Keller, TX
5,674 posts, read 5,761,956 times
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I realize there's a "mortgage" forum here, but this is more an economic question than one about an individual mortgage. Wondering what you think about changing the way mortgages work in the US. Here, we have a pro-borrower system:

UNITED STATES
1. No-recourse: in the US (in some states?) when you walk away from the loan, you're basically scott-free; your credit score takes a bazooka blast, but you're not really tied to the property or the loan

2. Fixed rates: in the US, you can lock in a rate for 15 or 30 years

3. No prepayment penalties: in the US, you can pay early with no penalty -- basically lowering your total interest paid every time you pay extra toward principal

AUSTRALIA (for example)
1. Recourse: in Australia, the bank can and will go after you for the difference between the debt and the property value

2. Variable rates: in Australia, rates are locked in for a maximum of five years, there are no 30 year fixeds

3. Prepayment penalties: in Australia, you can pay the loan down early, but you pay the interest that the lender lost from the loan not being carried to term

I don't have a strong opinion, looking for opinions and info. Thanks.
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Old 10-15-2008, 07:51 PM
 
Location: Keller, TX
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So no comments. Guess that means everyone loves the US version.
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Old 10-15-2008, 09:38 PM
 
Location: Charleston, SC
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Or isn't familiar with how mortgages work elsewhere. Either / or.

I could ask my friends in Austria how theirs works, but that's a pretty personal question...
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Old 10-15-2008, 09:53 PM
 
Location: Keller, TX
5,674 posts, read 5,761,956 times
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Quote:
Originally Posted by scuba steve View Post
Or isn't familiar with how mortgages work elsewhere. Either / or.
That's true.

But I laid out a few basic principles that are different in Australia: recourse, no fixed rates, and interest penalties for repayment. I'm not sure of all the possible permutations for how mortgages could work.

Personally, I'd like to see loans be recourse loans, where the banks can place claims on other assets, but I really like the idea of a locking in a fixed rate, so the five year max idea would be a bitter pill. As for prepayment, I like to pay early (I paid off my 60 month car loan in 13 months) but I can see the point.

These variations on the rules would surely put more responsibility on borrowers to make sure they're being fiscally conservative and not buying more than they can afford.
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Old 10-16-2008, 08:15 AM
 
Location: Charleston, SC
5,615 posts, read 13,829,091 times
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Those rules I could live with, especially if I were given a break on interest rates if the lender were given recourse beyond taking the house back. I also like taking advantage of paying early... I used to think the bank might not have liked that so much, but who knows these days.

What I couldn't live with is changing the system up so that you go to prison (and debts aren't wiped clean) if you can't pay. Pushing things back to colonial times is a bit much for me.
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Old 10-18-2008, 10:37 AM
 
68 posts, read 111,614 times
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In the UK mortgages are similar to the description of the Australian mortgage

standard variable rate - where the interest rate changes as the bank rate goes up or down - we have always had this.
short term fixed rates are available 2 to 5 years is common - you would then remortgage if wanted another fixed rate.
10 year fixed rates are less common but are available.
25 year fixed rates are availabe but are like rocking horse sh*t

if you change your mortgage within the fixed term, especially early on you normally have to pay redemption fees.

You can get interest only mortgages - you pay no capital back - so payments are lower (how would you pay it back at the end?) The theory is as you earned more and payments became easier you change to capital repayment mortgage.
Most mortgages are capital and interest repayments - like ours.

You can normally overpay your mortgage with little or no claw back of lost interest from the lender, none in our case.

Interest is calculated annually or daily - ours is daily - you pay much less back.

If you default - eventually you will have your house repossessed (foreclosed), if your house is sold and the sale amount covers the mortgage amount, fine, if it doesn't you will be pursued for the difference between the selling price and outstanding mortgage amount. You won't go to prison or anything, but debt will be chased and you could have your earnings attached(money kept from your pay by the courts to pay the debt). And your credit rating wil be shot for years if pay the debt or not.
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Old 10-18-2008, 11:51 AM
 
Location: Ohio
23,193 posts, read 16,680,827 times
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Quote:
Originally Posted by Nepenthe View Post
UNITED STATES
1. No-recourse: in the US (in some states?) when you walk away from the loan, you're basically scott-free; your credit score takes a bazooka blast, but you're not really tied to the property or the loan

AUSTRALIA (for example)
1. Recourse: in Australia, the bank can and will go after you for the difference between the debt and the property value
I don't know where you got that idea, but you aren't basically "scott-free." They come after you.
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Old 10-18-2008, 12:06 PM
 
Location: Keller, TX
5,674 posts, read 5,761,956 times
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Quote:
Originally Posted by Mircea View Post
I don't know where you got that idea, but you aren't basically "scott-free." They come after you.
Here's some more information (scroll down a bit): List of non-recourse mortgage walkaway states
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Old 10-18-2008, 03:27 PM
 
Location: Memphis, TN
185 posts, read 926,872 times
Reputation: 110
If you think American homeowners have it easy now, just wait until the next bailout comes and they allow the irresponsible who are underwater on their house to refinance at an affordable fixed rate and they magically reduce their principal balance to the new/lower appraisal price. The majority of American homeowners are responsible and pay their mortgage, so most American's would get the shaft and the overextended would be rewarded. Personally, I think we should start offering 100 year mortgages to the irresponsible as a refi option, like in Japan, where they would pay mostly interest for the 1st 50 years.
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