6 December 2010
Such changes can be provoked by different factors: new interest rate trends, the economy, securitization, or government rule-making.
Let’s look at this situation closer. Here are some examples:
• The U.S.:
In the U.S. hybrid adjustable rate mortgages were very popular, but then the subprime crisis hit and, as a result, today the long-term fixed rates dominate again.
Borrowers in Spain moved from fixed to variable mortgages right after the government restricted the ability of lenders to charge pre-payment penalties in the mid-1990s.
In 2005, almost 3/4 of Danish mortgages used to be medium and long term fixed rates. And by 2009, 80% of Danes shifted to variable and short-term fixed rates because of falling rates tendency.
There are also other international mortgage differences. In Germany, for example, lenders sell interest rate risk insurance. They also offer forward rate contracts. It means that borrowers can lock in rates up to 3 years in advance.
In case of Netherlands’ mortgages 79% of them are interest-only.
Speaking about pre-payment penalties, it’s interesting to note that U.S. mortgages typically don’t charge pre-payment penalties (but in the same time U.S. borrowers often overpay while closing). In France and Spain there are laws limiting pre-payment penalties.
The amortizations differences are quite significant: in Finland it can go up to 60 years, while in Switzerland and Japan they reach 100 years.