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Comment by forgingahead | Hacker News Reader

To be fair, the fixed interest rate mortgage is uniquely American, and is not seen in most other countries of the world. It's a great deal if you can get it! But obviously someone has to backstop the other end of this deal, and in the US it's basically the government.

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I have a mortgage that is fixed interest and not backed by the government in anyway... So I think you might be wrong on how the risk is calculated.

I can't see how any new risk is added in a fixed rate. In fact I can't see how a non fixed rate would really be good for anybody, and would keep the risk fluctuating for all parties involved.

If you have a fixed rate mortgage, the bank bears an interest rate risk. If the interest rate goes up, the bank could be getting more money in interest, but they aren't.

If you have an adjustable-rate mortgage, you bear the interest rate risk.

No, the bank has at risk the capital loaned, which they payed out. A risk is not a "loss" in a hypothetical amount of money that maybe could be had in the future given market conditions which are not predictable.

> A risk is not a "loss" in a hypothetical amount of money that maybe could be had in the future given market conditions which are not predictable.

This is incorrect. It is very common for investors (yes, including commercial banks) to frame risk in the way I described. This link to investopedia will expound upon my admittedly short description of interest rate risk [1]. Another obvious risk in this context is prepayment risk [2]. Note that both of these risk models are not about whether or not the bank is losing the money used to pay for the home, but are about factors that could affect the return on investment. You can find even more examples of risk models exactly like this on investopedia.

[1] https://www.investopedia.com/terms/i/interestraterisk.asp [2] https://www.investopedia.com/terms/p/prepaymentrisk.asp

Is it just me or is a prepayment risk effectively moot for large loan investment companies like banks?

After all, even though their calculations were counting on the profits of that money, having it back now means they can loan it out again, and possibly will receive a lager return if interest rates have risen.

For instance, my mortgage is at 2.49%. Right now interest rates are at 3.04%, so if I paid my mortgage off today the bank should be able to find a borrower who would pay over 20% more for the same money, right?

I get that this could go in the opposite direction, though, so I know it's not a perfect answer.

and for its trouble and for its more risk bank is getting a higher rate than variable. bank run numbers so it receive acceptable level of risk.

We have fixed interest rate mortgages in Canada, but the fixed rate is only valid for a specific period (typically 5 years). After this, the mortgage needs to be either renewed for another term at then-current rates, or transferred to a new lender.

Sure, fixed term for a short period is normal everywhere. But a fixed term for the entire length of the mortgage, whereby mortgage terms are commonly 30 years long, are only seen in the US and Denmark.

Here's some more detail on this: https://www.netinterest.co/p/financing-the-american-home

> But a fixed term for the entire length of the mortgage, whereby mortgage terms are commonly 30 years long, are only seen in the US and Denmark.

Strange, because I have a fixed term for the entire length of my mortgage and I'm not living in those countries. Admittedly it's for a length of time shorter than 30 years, but even at that timeframe it would be possible to get one.

There is however one additional modifier in the statement of the article: "fully prepayable", that may not exist anywhere outside of Denmark and the USA (but still, your source doesn't really explain where it got it's list of countries that have it, so I have no way to know it's correctness).

You can add the Netherlands and many other European countries to that list.

We have these in the US too, they're called adjustable-rate mortgages.

Yes, but hardly anyone uses them because fixed rate mortgages are so much better of a deal in most cases. The government owned guarantors (Fannie/Freddie mainly) are the main reason that 30 year mortgages can be offered at such low rates in the U.S.

My point was that the things they're calling fixed-rate mortgages are in fact not fixed-rate mortgages.

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