If you have or are currently taking out a mortgage or completing a refinance, you may wonder whether things are the same in other countries.



Is this much paperwork involved with mortgage applications in Germany?

Well, surprisingly enough, although you have to fill out mountains of paperwork, you could be better off than your foreign counterparts when it comes to obtaining a mortgage with favorable rates and terms.

A January 28, 2007 article by Lew Sichelman of The Los Angeles Times, “A look at how home mortgages work around the world," takes a peak into different countries and their corresponding mortgages.

“It may come as a surprise to learn that America's homeownership rate is not nearly as high as that of some other countries — although few countries can stand up to ours when it comes to the sheer size of houses, the number of bedrooms and bathrooms, and such features as air conditioning and garages."

“The United States also has a mortgage system that is second to none. Indeed, our system of mostly fixed-rate loans funded at relatively low rates is widely envied but rarely emulated, even in developed countries."

The primary dissimilarity between our mortgage system and the systems of other countries is our second mortgage market.

“The main difference is that the primary U.S. mortgage market is backed by a sophisticated, well-developed secondary market in which investors throughout the globe keep our local lenders awash in cash. They do that through largely secondary-market intermediaries such as Fannie Mae and Freddie Mac, two government-sponsored enterprises that were chartered by Congress to make sure lenders always have money to lend, even during periods of high interest rates, and private conduits that perform the same function."

Although many borrowers complain about the lengthy lending process in some situations, it is only in place to protect the consumers and because it works better than anything else.

Take a look at our neighbors to the North for example. “Canada: Mortgages rarely have rates that are fixed for more than five years. And they almost always come with ‘yield maintenance penalties’ that guarantee lenders a minimum return over the fixed-rate period. When the loans roll over — when the period of fixed rates expires — borrowers select another fixed-rate term ranging from one to five years at the then-current mortgage rate."

In Great Britain, they have variable-rate mortgages (similar to our ARMs), but the only limit on how they can go is according to the competition, since they place no caps on their loan. So if the market changes, lenders look at their competition to see where they should set their rates.

Denmark has a mortgage market that is most similar to the United States’ and places like Italy and France still have relatively small markets in comparison to their size and strength of their economy.

The German market is quite large, although there are not nearly as many options or products as we have in the States and the terms of the loans are not nearly as favorable as we see here.

“Borrowers have limited options and usually put down at least 40%. If they want to borrow more than 60%, they can take out a second mortgage for up to an additional 20% of value. The rates charged on first mortgages are only slightly higher than rates on government bonds with a similar maturity. But if the loans are paid off early, they are required to pay the lender all the interest they would have paid had the loan amortized through to maturity."

So next time you think it may be a difficult process to take out a mortgage here, just look to other countries and consider yourself fairly lucky.