Different Approach to Mortgage Loans Outside the US

Andrew BlackBy: Andrew Black

September 16, 2015September 16, 2015

Different Approach to Mortgage Loans Outside the US

Housing is at the center of the forces which enable people to attain wealth. This is true everywhere in the world, and you see powerful influences coming from all corners: policy and legislation, a look at the demographics of homeownership, and national status quos of mortgage loans. These factors aren’t doled out equally, even within specific nations, a concept that is becoming a minor stir within the American political conversation. But we’re going to focus on that last point mentioned above: mortgage loans by nation. As it turns out, Americans have it very good compared to other developed nations.

Loans in Europe and much of the rest of the world rarely follow American mortgage conventions. For instance, Adjustable Rate Mortgages (ARMs), while available in the US, are considered risky and undesirable by most. You’ll even hear them described as dangerous. And ARM critics have a point. The great thing about a fixed-rate mortgage is a simple fact that it never changes. What you pay today, you’ll pay 15 or 30 years from now. Even for those Americans who have a hybrid adjustable-rate mortgage, it’s usually very easy to refinance. This simply isn’t the case in much of the rest of the world.

Canada, for instance, only has ARMs. You’ll also commonly see Hybrid ARMs which have fixed rates over a certain period, usually 10 years, before the loan is refinanced or the rate adjusted. Despite these facts, and all of the bad press ARMs get in the US, Canada has a fairly stable housing market by comparison to their southern continent-mate. If this were the only exception to the US status quo, it wouldn’t tell us much. But it turns out that it’s the United States that’s the odd one out when considering the world at large.

Great Britain has much the same situation, though the fixed portion of their hybrid ARM loans are often even shorter. Cursory research shows fixed-rate periods of only about two years before variable rates kick in. A similar situation is found in Australia, where one is hard-pressed to find any fixed-rate mortgage loans at all.

France is the only major developed nation whose mortgage culture seems to mirror that of the US, with 30 year fixed rate mortgages typifying the situation offered to new homeowners. Japan and Germany offer a mix of ARMs and FRMs, but the Fixed Rate loans have much shorter terms than the luxurious 30-year mortgages offered to American homeowners.

In the end, it seems that if an American is able to secure a home loan, it’s often a pretty cushy loan at that. It appears that people trying to understand America’s low homebuying rates should look elsewhere. With some of the best mortgage lending perks found anywhere in the world, combined with still-low borrowing rates, an American homeowner can find him or herself with a very manageable long-term mortgage loan, that is, if the buyer can get the loan in the first place.

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Andrew Black

About the Author:

Andrew Black is a personal finance and investment writer from Baltimore, Maryland. He specializes in creating passive income and financial security through value investing and real estate.

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