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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 e

by 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
The big difference is that in most European countries I know of you are locked into that fixed rate for the duration of the loan and cannot re-finance or pay it off early without getting hit with huge penalty fee, essentially equal to the lost interest payments the bank would be missing out on. In the US you can pay off and/or renegotiate early without those penalties.
- Freak_NL 3y ago
  Paying off an extra 10% of the loan each year without penalty is usually possible in the Netherlands for a 30 year mortgage. I did it this year.
- laboratorymice 3y ago
  This sounds strange. Banks typically hedge their fixed rate loan portfolio because there aren't many equivalent long-dated fixed-rate funding sources available to them. If the US market is such that borrowers can repay early or renegotiate long-dated fixed-rate mortgages without penalties, the banks are practically guaranteed significant losses when fixed-rates decline. Do US banks just charge higher spreads than European ones to compensate for this? That sounds undesirable, similar to tax loopholes: everyone pays more to compensate the enlightened few that actually take advantage of something that _everyone_ would want to do.
  - dagw 3y ago
    The US mortgage market is essentially backstopped by the US government. Banks can sell the fixed rate mortgages to a government backed bank at a guaranteed rate and so don't have to hold the interest rate risk on their books. The US government (both parties) has long believed that home ownership is important and have a lot of policies to encourage it, this is one of them.
  - evandijk70 3y ago
    You can repay early in the Netherlands as well. A friend of mine works for a major bank to hedge the risk of their mortgage portfolio. He mentioned once that the biggest risk for Dutch banks is not the risk of default, but risk of early repayment. This always surprised foreign investors when they did due diligence to invest in Dutch mortgages. There are ways they use to hedge for this risk. I don't know if this is desirable, but that is probably the case in the US as well.

by 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

The big difference is that in most European countries I know of you are locked into that fixed rate for the duration of the loan and cannot re-finance or pay it off early without getting hit with huge penalty fee, essentially equal to the lost interest payments the bank would be missing out on. In the US you can pay off and/or renegotiate early without those penalties.

Freak_NL 3y ago
Paying off an extra 10% of the loan each year without penalty is usually possible in the Netherlands for a 30 year mortgage. I did it this year.
laboratorymice 3y ago
This sounds strange. Banks typically hedge their fixed rate loan portfolio because there aren't many equivalent long-dated fixed-rate funding sources available to them. If the US market is such that borrowers can repay early or renegotiate long-dated fixed-rate mortgages without penalties, the banks are practically guaranteed significant losses when fixed-rates decline. Do US banks just charge higher spreads than European ones to compensate for this? That sounds undesirable, similar to tax loopholes: everyone pays more to compensate the enlightened few that actually take advantage of something that _everyone_ would want to do.
- dagw 3y ago
  The US mortgage market is essentially backstopped by the US government. Banks can sell the fixed rate mortgages to a government backed bank at a guaranteed rate and so don't have to hold the interest rate risk on their books. The US government (both parties) has long believed that home ownership is important and have a lot of policies to encourage it, this is one of them.
- evandijk70 3y ago
  You can repay early in the Netherlands as well. A friend of mine works for a major bank to hedge the risk of their mortgage portfolio. He mentioned once that the biggest risk for Dutch banks is not the risk of default, but risk of early repayment. This always surprised foreign investors when they did due diligence to invest in Dutch mortgages. There are ways they use to hedge for this risk. I don't know if this is desirable, but that is probably the case in the US as well.