How U.S. Mortgages Compare
Sunday, the LA Times ran an interesting article on how the U.S. mortgage systems compares to other countries. While the U.S. system comprised of mostly fixed-rate loans funded at relatively low rates is widely envied, it is rarely “copied” in other countries.
The article talks about the following countries and their mortgage systems:
Canada: Mortgages rarely have rates that are fixed for more than five years. And they almost always come with “yield maintenance penalties” that guarantee lenders a minimum return over the fixed-rate period.
Great Britain: Variable-rate mortgages dominate here. These are the English version of our adjustable-rate mortgages. But unlike our ARMs, which usually come with annual and life-of-the-loan caps that protect borrowers against uncontrolled spikes in their monthly payments, those in Britain are held in check solely by the competition.
Japan: Banks offer mostly adjustable-rate mortgages or short-term (typically three-year) fixed-rate loans. Also, down payments average 50% to 60%.
Germany: Borrowers have limited options and usually put down at least 40%. If they want to borrow more than 60%, they can take out a second mortgage for up to an additional 20% of value.
France: More than half the loans there have fixed rates, but the term is typically less than 20 years. Fifteen-year terms are most common. Prepayment penalties are limited by statute, but required down payments are as much as 40%. Also, a borrower’s credit record and capacity to pay are deemed more important than the underlying value of the property.
Italy: Currently , most loans come with variable rates, short terms, prepayment penalties and low loan-to-value ratios. The average down payment is 50%; the typical term, 10 to 15 years.