Popularity
Variable rate mortgages are the most common form of loan for house purchase in the United Kingdom, Ireland and Canada but are unpopular in some other countries such as Germany. Variable rate mortgages are very common in Australia and New Zealand. In some countries, true fixed-rate mortgages are not available except for shorter-term loans; in Canada, the longest term for which a mortgage rate can be fixed is typically no more than ten years, while mortgage maturities are commonly 25 years.
In many countries, it is not feasible for banks to borrow at fixed rates for very long terms; in these cases, the only feasible type of mortgage for banks to offer may be adjustable rate mortgages (barring some form of government intervention).
Countries where fixed rate loans are the common form of loan for a house purchase usually need to have a specific legal framework in place to make this possible. For example, in Germany and Austria the popular Bausparkassen, a type of mutual building societies, offer long-term fixed rate loans. They are legally separate from banks and require lenders to save up a considerable amount, at a rather low fixed interest rate, before they get their loan; this is done by requiring the future lender to begin paying in his fixed monthly payments well before actually getting the loan. It is generally not possible to pay this in as a lump sum and get the loan right away; it has to be done in monthly installments of the same size as what will be paid during the payback phase of the mortgage. Depending on whether there are enough savers in the system at any given time, payout of a loan may be delayed for some time even when the savings quota has already been met by the would-be lender. The advantage for the lender is that the monthly payment is guaranteed never to be increased, and the lifetime of the loan is also fixed in advance. The disadvantage is that this model, in which you have to start making payments several years before actually getting the loan, is mostly aimed at once-in-a-lifetime home buyers who are able to plan ahead for a long time. That has become a problem with the generally higher mobility that is demanded of workers nowadays.
For those who plan to move within a relatively short period of time (three to seven years), variable rate mortgages may still be attractive because they often include a lower, fixed rate of interest for the first three, five, or seven years of the loan, after which the interest rate fluctuates.
Read more about this topic: Variable-rate Mortgage
Famous quotes containing the word popularity:
“Here also was made the novelty ‘Chestnut Bell’ which enjoyed unusual popularity during the gay nineties when every dandy jauntily wore one of the tiny bells on the lapel of his coat, and rang it whenever a story-teller offered a ‘chestnut.’”
—Administration for the State of Con, U.S. public relief program (1935-1943)
“In everything from athletic ability to popularity to looks, brains, and clothes, children rank themselves against others. At this age [7 and 8], children can tell you with amazing accuracy who has the coolest clothes, who tells the biggest lies, who is the best reader, who runs the fastest, and who is the most popular boy in the third grade.”
—Stanley I. Greenspan (20th century)
“A more problematic example is the parallel between the increasingly abstract and insubstantial picture of the physical universe which modern physics has given us and the popularity of abstract and non-representational forms of art and poetry. In each case the representation of reality is increasingly removed from the picture which is immediately presented to us by our senses.”
—Harvey Brooks (b. 1915)