4 ms·

The American mortgage market is very unique from the perspective that it has 10, 15 and 30 year fixed rate debt. There are generally no prepayment penalties and

by bhawks 3y ago

The American mortgage market is very unique from the perspective that it has 10, 15 and 30 year fixed rate debt. There are generally no prepayment penalties and no balloon payment (each payment is the same amount even the last one). You can pay down extra any time you want and it reduces your principal appropriately. The maturities and payment structures are quite generous compared to many other countries mortgage products. Of course there are shorter maturities and different types of adjustable rate mortgages but these are not popular (fallout from 2008 crisis and the general low interest rate environment). Edit: there is also 40 year fixed products starting to be offered.

thinkerswell 3y ago
What is the cause of it being do different from the rest of the world?
- topspin 3y ago
  Government policy. The US has multiple quasi-government mortgage market makers (because just one is somehow not enough...) that define baseline terms for home mortgages, and everyone must play their tune. See Fannie Mae and Freddie Mac. Seriously. That's what they're named. There is another one tangentially involved as well that I can't remember the name of.
  - Gibbon1 3y ago
    Exactly. Fannie Mae and Freddie Mac buy about around 70 percent the mortgages issued by banks. They only by conforming mortgages, meaning conforming to their terms. https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp https://www.investopedia.com/articles/economics/08/fannie-ma... See also the Federal Housing administration which insures loans. https://www.hud.gov/program_offices/housing/fhahistory https://www.hud.gov/program_offices/housing/fhahistory One can see there really isn't a laissez faire free market at work when it comes to housing in the US. The government is in deep and it's regulated out the ying yang.
    - deleted 3y ago
      [deleted]
    - topspin 3y ago
      > One can see there really isn't a laissez faire free market at work One would think. Yet there is never a shortage of "See! That's Capitalism For You" comments.
  - kennethrc 3y ago
    > See Fannie Mae and Freddie Mac. Seriously. That's what they're named. Well, colloquial names for "FNMA" (Federal National Mortgage Association) and "FHLMC" (Federal Home Loan Mortgage Corporation) anyway
- patd 3y ago
  We also have 20 to 30 years fixed rates in Belgium. It seems to be possible in France, Germany, The Netherlands, … So I’m not sure that the US is actually an exception.
  - afandian 3y ago
    A family member recently got a long term fixed low rate mortgage in Belgium and I’m curious about how different things are compared to the UK. UK mortgages are higher, shorter term. Is the Belgian bank losing money compared to the UK one? Is there state intervention?
    - patd 3y ago
      There is no state intervention. Depending on market conditions, a 30 years fixed can have a higher rate than 25 years. It’s basically hedged with long term bonds (Belgian or European) + a profit margin for the bank + risk based on your profile (age, health, employment history, …) I guess UK banks are just hedging with shorter term bonds compared to Belgian ones.
    - michaelt 3y ago
      In the UK it's long been possible to get a kinda long term fixed rates - at least 10 years. They just don't tend to sell very well - when interest rates are low [1], it's not particularly appealing to fix at 2.69% for 10 years when you could fix at 1.94% for 5 years or 1.25% for 2 years. And coming off the back of two decades of rock bottom interest rates, a lot of people didn't anticipate that they'd be remortgaging at a >5% interest rate. [1] https://web.archive.org/web/20170921064712/https://www.barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf https://web.archive.org/web/20170921064712/https://www.barcl...
  - cbovis 3y ago
    Spain is also similar. We recently locked in a 2.65% for 5 years but 15 years around 3% was also available. That 15 year came with early repayment penalties though.
  - dagw 3y ago
- Gibbon1 3y ago
  Great depression is why. Before real estate loan terms were exploitive interest only loans that the bank could call in any time. Worse they could demand payment in a fixed amount of gold. And when they foreclosed the owner lost his entire collateral. First three years of the great depression was an orgy of foreclosures driven by bankers greed and panic. FDR closed the banks, seized all gold except for personal jewelry. The new deal introduced 30 year fixed rate mortgages to make sure the banks couldn't do that again. Loosening rules led to the 2008 crisis where they did it again. But the rules did still protect most.

by bhawks 3y ago

thinkerswell 3y ago

What is the cause of it being do different from the rest of the world?

topspin 3y ago
Government policy. The US has multiple quasi-government mortgage market makers (because just one is somehow not enough...) that define baseline terms for home mortgages, and everyone must play their tune. See Fannie Mae and Freddie Mac. Seriously. That's what they're named. There is another one tangentially involved as well that I can't remember the name of.
- Gibbon1 3y ago
  Exactly. Fannie Mae and Freddie Mac buy about around 70 percent the mortgages issued by banks. They only by conforming mortgages, meaning conforming to their terms. https://www.investopedia.com/articles/economics/08/fannie-mae-freddie-mac-credit-crisis.asp https://www.investopedia.com/articles/economics/08/fannie-ma... See also the Federal Housing administration which insures loans. https://www.hud.gov/program_offices/housing/fhahistory https://www.hud.gov/program_offices/housing/fhahistory One can see there really isn't a laissez faire free market at work when it comes to housing in the US. The government is in deep and it's regulated out the ying yang.
  - deleted 3y ago
    [deleted]
  - topspin 3y ago
    > One can see there really isn't a laissez faire free market at work One would think. Yet there is never a shortage of "See! That's Capitalism For You" comments.
- kennethrc 3y ago
  > See Fannie Mae and Freddie Mac. Seriously. That's what they're named. Well, colloquial names for "FNMA" (Federal National Mortgage Association) and "FHLMC" (Federal Home Loan Mortgage Corporation) anyway
patd 3y ago
We also have 20 to 30 years fixed rates in Belgium. It seems to be possible in France, Germany, The Netherlands, … So I’m not sure that the US is actually an exception.
- afandian 3y ago
  A family member recently got a long term fixed low rate mortgage in Belgium and I’m curious about how different things are compared to the UK. UK mortgages are higher, shorter term. Is the Belgian bank losing money compared to the UK one? Is there state intervention?
  - patd 3y ago
    There is no state intervention. Depending on market conditions, a 30 years fixed can have a higher rate than 25 years. It’s basically hedged with long term bonds (Belgian or European) + a profit margin for the bank + risk based on your profile (age, health, employment history, …) I guess UK banks are just hedging with shorter term bonds compared to Belgian ones.
  - michaelt 3y ago
    In the UK it's long been possible to get a kinda long term fixed rates - at least 10 years. They just don't tend to sell very well - when interest rates are low [1], it's not particularly appealing to fix at 2.69% for 10 years when you could fix at 1.94% for 5 years or 1.25% for 2 years. And coming off the back of two decades of rock bottom interest rates, a lot of people didn't anticipate that they'd be remortgaging at a >5% interest rate. [1] https://web.archive.org/web/20170921064712/https://www.barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf https://web.archive.org/web/20170921064712/https://www.barcl...
- cbovis 3y ago
  Spain is also similar. We recently locked in a 2.65% for 5 years but 15 years around 3% was also available. That 15 year came with early repayment penalties though.
- dagw 3y ago
Gibbon1 3y ago
Great depression is why. Before real estate loan terms were exploitive interest only loans that the bank could call in any time. Worse they could demand payment in a fixed amount of gold. And when they foreclosed the owner lost his entire collateral. First three years of the great depression was an orgy of foreclosures driven by bankers greed and panic. FDR closed the banks, seized all gold except for personal jewelry. The new deal introduced 30 year fixed rate mortgages to make sure the banks couldn't do that again. Loosening rules led to the 2008 crisis where they did it again. But the rules did still protect most.