Hi I was listening to a pod cast and they mentioned how Americans can lock in a mortgage interest rate for 30 or 15 years. In canada you can lock in a rate from 1 to 10 years but the average is 5 years. Also US banks will offer lower interest rates for the entire term of the mortgage. Aren’t the banks losing out on potential future profits doing this?
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This exists because of US government policy that arose in the wake of the Great Depression where variable rates caused many people to lose their houses.
The US responded afterwards by passing laws that established giant mortgage buying companies (Fannie Mae/Freddie Mac) that are government sponsored enterprises. These companies buy mortgages written by banks, with some risk underwritten by the government.
This reduces risk exposure for the retail-level banks so they can write notes with a 30 year fixed rate repayment period because they don’t have to carry the risk of rates rising dramatically during the life of the mortgage.
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