U.S. Mortgage Holders Are Fortunate
We are the only country where the dominant mortgage is a 30-year fixed-rate loan, and this matters now because interest rates have doubled as the Fed fights inflation. The good news is that long-term borrowers can rest easy knowing their mortgage payment won’t go up; the bad news is that there’s a shortage of homes on the market to meet demand today because homeowners don’t want to trade in their 3% mortgages when they sell for 7% mortgages when they buy.
In Great Britain, over a third of households own their homes free & clear of a mortgage, about the same percentage rent and the remaining have mortgages that are only fixed for a short period, commonly two to five years. The good news for these borrowers is that their monthly payments won’t go up right away; the bad news is that around 3 million households will face an increase of up to $650/month by the end of this year.
In Canada, the standard is a five-year mortgage that amortizes over 25 years. That means the loan balance has to be refinanced at the end of every five-year period, exposing the borrower to any increase in rates that have occurred. An interesting feature of Canadian mortgages is that they are portable, so that you can transfer your loan to your new property without having to refinance until the five years is up.
Down under, most borrowers take out adjustable rate mortgages in Australia, almost all fixed-rate loans are for one to five years in length. In New Zealand, fixed-rate mortgages make up the bulk of loans, but nearly 60% of those are fixed for only a year (hardly fixed at all).
In the other countries, housing values may fall when/if homeowners are faced with higher monthly payments and are forced to sell. But in the U.S. today, an option for today’s homeowners is to simply do nothing.
If you are ready to buy, Tupper’s Team can refer you to a lender who will allow you to refinance for very little cost (if any). So you can buy today and adjust your monthly down the road when rates fall—what goes up always goes down.