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Comment by scruple | Hacker News Reader

What are the mortgage terms where you're from? In always curious to understand how other countries and systems deal with this but I'm largely ignorant to it outside of anecdotes like this.

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The standard in Canada, for example, is a 25 year mortgage which you renew every 5 years (fixed or variable, your choice).

Could you clarify what you mean by "renew"? That sounds a mortgage with rates that are reset every five years, which doesn't sound like "fixed" to me.

If it's the same as in the UK, Australia and NZ, then the rates are "fixed" for sub-durations within the overall length of the mortgage/home loan, and at the end of the sub-duration, you negotiate what the "fixed" rate is for the next sub-duration with the bank / mortgage lender.

So for a twenty year "fixed" mortgage, you could end up splitting that into "fixed" rate chunks of 3 years, 3 years, 5 years, 3 years, 1 year, 3 years, years, 2 years.

So the rate is "fixed" for what's often called the "fixed period" (sub-duration), giving you a bit of stability, but over the longer term of the overall mortgage, things can track interest rates more generally as you renew the rate.

Also the same for the Nordic countries and few eastern Europe ones I'm aware of.

I think the technical term for this is a 5/5 ARM which is NOT a "fixed" rate loan. Most of the world borrows with ARMs.

(in some countries) the technical term is “fixed-rate (as opposed to variable-rate) mortgage” - but the mortgage term can be much lower than the amortization period.

Yes. In countries like Canada, the term "fixed rate mortgage" maps to what Americans would call an ARM. 25-year fixed-rate mortgages are simply not available to individual homebuyers. 5 years is generally the highest rate at which you don't have to pay a steep (ie, 1000 bps) premium for, essentially, adding a call option on your loan.

> a steep (ie, 1000 bps) premium

I think that you have an extra zero there?

Maybe we should split the difference! The best 25-year fixed-rate mortgage currently appears to be 9.75%, which is about 500 bps higher than the best 5-year fixed-rate mortgage [1]. But in 2021 with 5-year fixed mortgage rates near 2%, the 25-year fixed-rate was still around this level. So it looks like the premium has gone down a bit since the last time I checked. Perhaps that's partly a result of the yield curve inversion we have these days, since the Canada 30-year bond yield is presently just 3.2%. [2]

[1]: https://www.ratehub.ca/best-mortgage-rates/25-year/fixed

[2]: https://www.marketwatch.com/investing/bond/tmbmkca-30y?count...

When you wrote “5 years is generally the highest [term] at which you don’t etc.” it sounded as if you meant that for a term of say 10 years you did etc. [The spread between the 5y and the 10y rates is around 100bps.] There is quite a range of terms higher than 5 and lower than 25.

Ah, I see. Yes, my wording could have been better.

Basically correct - fixed is fixed over the 5 years, variable changes within those 5 years.

So variable, not fixed. Fixed means fixed over the term of the loan. As soon as you recalculate interest rates, it is not longer fixed by any definition.

Nothing wrong with variable rates in certain circumstances but you can't call a 5/5 ARM fixed.

As a matter of fact, you can.

https://www.ons.gov.uk/peoplepopulationandcommunity/housing/...

“More than 1.4 million households in the UK are facing the prospect of interest rate rises when they renew their fixed rate mortgages in 2023.

“The majority of fixed rate mortgages in the UK (57%) coming up for renewal in 2023 were fixed at interest rates below 2%. Those deals that are due to mature through the course of 2024 will be from two-year fixed rate deals made in 2022 and five-year fixed rate deals made in 2019, when mortgage rates were generally higher than 2%.”

To be clear, the rate is fixed during the term of the mortgage (say 5 years) but the amortization period is different (say 25 years).

https://www.canada.ca/en/financial-consumer-agency/services/...

Yet another reminder how challenging cross-cultural communication can be. There is no right or wrong here, just different. They key is recognizing the differences as early as possible to avoid confusion.

The terminology, unfortunately, varies with country. Your terminology is correct for America but in most of the world, "fixed" has a different meaning, because American-style fixed products are nonexistent.

In Germany, standard terms are to have the interest rate fixed for 10, 15 or 20 years, independant of how long it takes to pay off. Additionally, the customer has the right to refinance at current rates after 10 years. So a longer fixed rate is always an advantage to the customer, and thus more expensive.

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