30 year fixed mortages

Just wondering why the standard 30 year mortgage that is available in the US has never been available here?

Are there particular reasons for this?

Do they have penalties if they move house like we do?

I see avg 30 yr rates in US are approx 4.87% and would seem like a better way to go giving people certainty about what they will be paying.

Could a government backed scheme giving homeowners options to take 30 year fixed rates work?

Say for example the government take over all the banks - and secure long term funding from the ECB - could they bring in legislation to offer 30 year fixed rate loans to everybody at a set rate. Get the whole country on a secure footing where they know exactly what they will be paying - therefore encouraging some level of spending as people are not saving for a mortgage rate enduced 'rainy day'.

that's too much of a good idea... not sure id sign up at that but at 4% they would have me for 30 years..

sman said:

Get the whole country on a secure footing where they know exactly what they will be paying - therefore encouraging some level of spending as people are not saving for a mortgage rate enduced 'rainy day'.

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Sounds good in theory but you would have to eliminate penalties for redeeming your mortgage early. I would not like to guess the breakage penalty in year 3 of a 30 year fixed rate. Otherwise people will be stuck with one mortgage for life.

AFAIK, in the US there are no pre payment penalties.

There is a 30 year US Treasury Bond that the 30 year fixed mortgages can be priced against, there is no such equivalent here but I remember reading some about 30 year bonds being introduced.

Kathleen Barrington has been pushing the idea for some time

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The banks have long argued that there is simply no demand in Ireland for them. They do offer 5 and 10 year rates, but the take-up is very poor. The premium to be built into a 30 year mortgage would be excessive.

But I suppose a good start would be a fixed 10 year mortgage. After 10 years, in normal circumstances, one would expect some of the capital to have been repaid, the borrower's income to have increased, and the value of the property to have increased. It's usually the first 10 years when people have a problem with their mortgage. After that, they don't really need to security and straighjacket of a long fix.

Brendan

NorfBank said:

AFAIK, in the US there are no pre payment penalties.

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correct, so what happens is that they work out a prepayment model which is used to price the mortgage. if there was a penalty to apply, the most likely the mortgage rate would be much lower - e.g. close to the 30 year bond yield of 4.64. I seem to recall NAB taking a loss of about US$2billion on their US subsidiary (Homeside) about 10 years ago when they miscalculated the level of prepayment when interest rates fell from 6% to 3% in a very rapid rate cutting cycle.
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us mortgage rates below....
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ok. so you pre pay a portion of the penalty over the term to insure against breaking the fixed term. is that correct?

also brendan , you mention that the premium would be excessive. why is this?
and how do the US not have such a high premium to pay.

Ironically, the credit crisis in the European banking sector has made it less likely that a 30 year mortgage will be introduced in the medium term, as there is not a snowball's chance in hell that a liquid 30 year bond market will develop from which to price mortgages, given the uncertainty about the future of European monetary union. So the product that we need to stabilise the mortgage markets is further away than ever.