"The 30-year fixed-rate mortgage is a distinctly American innovation," explains an analyst. Here's the reason.

An analyst describes the 30-year fixed-rate mortgage as a distinctly American innovation, highlighting its unique attributes and origins specific to the U.S. financial landscape.

A 30-year fixed-rate mortgage, known for spreading repayment over three decades at a consistent interest rate, is predominantly an American financial product, emphasized Greg McBride, chief financial analyst at Bankrate. This type of mortgage is popular among U.S. homebuyers, with 89% opting for it in 2022, yet its uniqueness on the global stage may not be widely recognized. Jacob Channel, a senior economist at LendingTree, noted that unless a homeowner refinances or sells, the initial rate remains unchanged regardless of market fluctuations.

The U.S. benefits from deep financial markets, allowing for such mortgage structures that significantly reduce homeowner stress compared to systems in other countries. The existence of the 30-year fixed-rate mortgage is largely due to the U.S.'s robust secondary market for mortgage-backed securities, which are packaged and sold to investors, explained McBride. This market was central to the financial crisis but has since seen significant reforms improving safety and reliability.

Additionally, institutions like Fannie Mae and Freddie Mac provide essential support, making these long-term fixed loans feasible by absorbing the interest rate risk that would typically burden homeowners in other nations. In contrast, countries like Canada and the U.K. offer fixed-rate mortgages but for much shorter periods, requiring frequent refinancing that shifts the interest rate risk back to homeowners. This distinction highlights the unique position of the U.S. in offering long-term financial stability through its mortgage options.

Source: CNBC