In so many articles about the housing and mortgage crisis in the United States, adjustable rate mortgages (ARMs) are invariably mentioned as one of the culprits. People can’t pay when the interest rate on their loan resets. The words ARM and dangerous are often used in the same sentence. Should ARMs bear the blame though? I linked to the mortgage loans offered by a Canadian bank in a previous post. There are no fixed rate loans in Canada. All they have in Canada are ARMs. If ARMs cause mortgage loan defaults and foreclosures, Canada would be in constant chaos.
As a follow-up to my post two weeks ago about understanding the world, I decided to expand my horizon beyond North America and take a look at mortgage loans in some other countries. Thanks to the power of the Internet and Google translation tools, I can do this relatively easily. I only limited my primitive research to developed countries. In each country, I picked a random bank, which should represent the available mortgage products in that country. I got the names of the banks from List of Banks in Wikipedia.
Canada – CIBC. No fixed rate loans. ARM and hybrid ARM with rate fixed up to 10 years. Refinance or take variable rate after the fixed rate period is over.
Britain – Halifax. No fixed rate loans. ARM and hybrid ARM with rate fixed up to 10 years. Refinance or take variable rate after the fixed rate period is over. When guests on the FT Money Show podcast talk about a “fixed rate” mortgage, they are actually talking about the rate fixed for 2 years; otherwise it’s a “tracker” mortgage.
France – Societe Generale. Fixed rate loans up to 30 years. ARMs are also available.
Germany – Hapsa. I can’t find rate quotes online but it looks like you can have a fixed rate loan for up to 15 years. ARMs and interest-only loans are also available.
Japan – Mizuho. Fixed rate loans up to 20 years. ARMs are also available.
Australia – ANZ. No fixed rate loans. ARM and hybrid ARM with rate fixed up to 10 years. Refinance or take variable rate after the fixed rate period is over.
You see the 30-year fixed rate mortgage in the United States is an exception, not a rule. Only France has 30-year fixed rate loans. The other countries don’t. ARM and hybrid ARM are the norm in other parts of the world. In many countries you also can’t refinance a hybrid ARM during the fixed rate period, whereas the hybrid ARMs in the U.S. typically can be refinanced at will. Americans still have it much better than people elsewhere.