The down payment requirements were introduced in the 2010s, because too many people got their fingers burned on rate free loans. Prior to that it was possible to make a mortgage of 100% of the capital and no rate payment for 10 years, in which buyers only had to pay interest which was around 6% at the time or variable between 2-4% or so.
It obviously broke when the 10 years were up and people had to “suddenly” pay both rates and interest on way too large loans. The banks had expected people to refinance before that and were gladly passing out unrealistically large loans.
It was crazy beforehand. You could walk broke and unemployed into a bank and get approved for buying houses worth millions, because you didn’t have to prove any kind of income except for covering the interest for the next month.
The down payment requirement forced the banks not to pass out these “free” loans to people without money. Not only should people be able to stomp up some cash, it also requires the bank to participate in the risk that they sell.
Now more currently, this up-conversion rage is something else. It can free up cash, right? Sure, but it makes the most sense if the customer has more expensive debts to be covered by that “free” liquidity. Like the bank loan? So that’s why the banks have been pushing it well out of what is reasonable. Yes, there were money to be made for a small window in 2022, but by the time your bank advices you to do it, you can bet that it is well past the good deal. For customers, it only makes sense in the long run if you can close more expensive loans or desperately need liquidity for perhaps buying a more expensive house, and don’t mind pushing the payments ahead into the future where you will “obviously” make soo much more money.
Personally I have converted my loan two times, but only downwards from 4% to 2.5% to 1%. I skipped the lowest offer of 0.5% because the savings didn’t cover the costs of doing it. I will be happily “locked in” on my 1% mortgage until I sell this house. Refinancing might free up cash, but it doesn’t balance in the long run. I’d basically be paying myself back for taking out that cash now, while the bank would take out their part right away.
The down payment requirements were introduced in the 2010s, because too many people got their fingers burned on rate free loans. Prior to that it was possible to make a mortgage of 100% of the capital and no rate payment for 10 years, in which buyers only had to pay interest which was around 6% at the time or variable between 2-4% or so.
It obviously broke when the 10 years were up and people had to “suddenly” pay both rates and interest on way too large loans. The banks had expected people to refinance before that and were gladly passing out unrealistically large loans.
It was crazy beforehand. You could walk broke and unemployed into a bank and get approved for buying houses worth millions, because you didn’t have to prove any kind of income except for covering the interest for the next month.
The down payment requirement forced the banks not to pass out these “free” loans to people without money. Not only should people be able to stomp up some cash, it also requires the bank to participate in the risk that they sell.
Now more currently, this up-conversion rage is something else. It can free up cash, right? Sure, but it makes the most sense if the customer has more expensive debts to be covered by that “free” liquidity. Like the bank loan? So that’s why the banks have been pushing it well out of what is reasonable. Yes, there were money to be made for a small window in 2022, but by the time your bank advices you to do it, you can bet that it is well past the good deal. For customers, it only makes sense in the long run if you can close more expensive loans or desperately need liquidity for perhaps buying a more expensive house, and don’t mind pushing the payments ahead into the future where you will “obviously” make soo much more money.
Personally I have converted my loan two times, but only downwards from 4% to 2.5% to 1%. I skipped the lowest offer of 0.5% because the savings didn’t cover the costs of doing it. I will be happily “locked in” on my 1% mortgage until I sell this house. Refinancing might free up cash, but it doesn’t balance in the long run. I’d basically be paying myself back for taking out that cash now, while the bank would take out their part right away.