[mortehu]

If that is the case, then banks in US are taking the same "ridiculous" trade by offering fixed rates to almost everyone, and will be decimated by any kind of interest surge.

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.

[nemo44x]

Banks package the loans into bonds which are then sliced up and sold to investors. Banks aren’t really in the speculation business as much as the underwriting business when it comes to mortgages.

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.

[raverbashing]

> Fixed rates are always a better option for the person borrowing the money

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

[qwytw]

> Basically, the "fixed rate" very rarely was smaller than the floating rate.

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.

[onlyrealcuzzo]

You can get a new mortgage at a lower rate if interest rates go down... You're allowed to repay.

[raverbashing]

Not "can" but "might be able to". For example, new builds might get you a lower interest rate, but if you go to refinance, then it's not a new build anymore. (Though in one way this is usually true - a lower principal will give you a lower interest rate usually)

A lot of banks do charge you a penalty for repaying before the (fixed interest) term in case of fixed rate mortgages.

[nemo44x]

Not in the USA. Any mortgage allows repayment without penalty. Banks actually want it that way as their business is underwriting loans and the fees associated with them.

[mortehu]

The fact that the borrower can renegotiate lower only increases the premium charged for fixed rate loans. It's not free money or free insurance.

[oblio]

Yeah, but I imagine you know that thing about limited upside but potentially boundless downside?