It’s because interest rates are so low. A combined income of $225 can easily afford a $1m home at todays rates.
It's not clear to some countries stick almost exclusively to fixed rate mortgages, and others stick almost exclusively to variable rates, but the people in "variable rate countries" have saved a lot of money historically.
Fixed rates are always a better option for the person borrowing the money as you can refinance if rates go lower, lowering your monthly payment.
Variable rate loans are far more regulated for a reason.
Check how variable rates and fixed rates have compared over time
Basically, the "fixed rate" very rarely was smaller than the floating rate.
Banks know how to calculate the rate ceiling and you're rarely going to win by betting against it. (Why would they risk borrowing it at a smaller cost than the given interest rate at a given time?)
Sure there's a risk of interest shock, that risk is not zero. You can mitigate it by a) not buying something overvalued and b) having a big enough downpayment
Well that's obviously expected. But by taking an fixed rate loan you're basically betting that the rate will increase in the future. Of course there's a risk that the interest rates will stay close to zero for the next 30 years like in Japan.
A lot of banks do charge you a penalty for repaying before the (fixed interest) term in case of fixed rate mortgages.
I'm sure the central bank would step in to prevent the roughly 60% of homeowners/voters from being negatively affected.
What you can’t have is millions of bag holders underwater with mortgages on homes valuations cut in half.
They slice up the loans and sell them as MBSes to the Fed and pension funds.
If interest rates go up ~1% - pension liabilities decrease ~12%: https://www.pentegra.com/wp-content/uploads/2016/12/The-Impa... This is not terrible for pension funds.
The Fed doesn't need bailed out...
Well, there is sovereign default but if the US does that, then we'd better hold on tightly to our breeches, from Kamchatka to Patagonia.
The US Government defaulting wouldn't impact the Fed's ability to continue to buy infinite sums of assets.
There's no reason that the US Government couldn't default and the Fed buy absurd amounts of treasuries until interest rates remain low or go even lower.
Honestly I’m of the opinion we won’t see any serious rise in rates. Too many mortgage holders and indebted governments would be broken.
Just look at the last month. The Fed threatens a few hikes that would push a 10 year bond to 2.5-3% and the market crashes.
And the thing is, maybe it would be better to blow off some of that steam in small bursts than find our <<after>> that 2 days ago was the point of no return.