Mortgage Variety Around The World

Short-term or long term. Fixed or variable. The type of rate that’s popular in a country doesn’t necessarily affect its home ownership rate.

The 12 developed countries profiled in the study all have very different mortgage compositions. Yet, each of them also has a high home ownership rate.

Canada, for instance, is dominated by medium-term fixed mortgages (especially the 5-year fixed).

The U.S. is all about long-term fixed rates (like 15- and 30-year fixed rates).

Some countries, like the UK, have almost all short-term or variable rates.

The “dominant mortgage product in a country can change over time.” These changes are prompted mostly by interest rate trends, the economy, securitization, or government rule-making.

For example:

• In the U.S.:  Hybrid adjustable rate mortgages (with low fixed payments for a few years, shifting to market-based variable-rate payments) were popular. Then the subprime crisis hit. Now, long-term fixed rates have regained dominance.
• In Spain:  Spaniards shifted from fixed to variable mortgages after the government restricted the ability of lenders to charge pre-payment penalties in the mid-1990s.
• In Denmark:  In 2005, 70% of Danish mortgages were medium-to-long-term fixed rates. By 2009, falling rates drove 80% of Danes into variable and short-term fixed rates.

Other interesting international mortgage policies:

• German lenders sell interest rate risk insurance. They also offer forward rate contracts so borrowers can lock in rates up to three years in advance.
• Japanese lenders allow fixed-payment variables that permit negative amortization (in Canada we prevent negative amortization with trigger rates).
• U.S. mortgages typically don’t entail pre-payment penalties (but U.S. borrowers often pay “points” up front and notably higher closing costs than Canadians).
• France and Spain have laws to limit pre-payment penalties.
• German borrowers often must provide six months notice of repayment, but they typically aren’t charged pre-payment penalties if they sell their homes.
• Amortizations in Finland go up to 60 years, while in Switzerland and Japan they reach 100 years (“inter-generational mortgages”).
• 79% of the Netherlands’ mortgages are interest-only.
• Payment holidays (skipped payments) are a popular feature in Australia and the U.K.