# Effect of hyperinflation upon mortgages? **URL:** \ **Category:** Factual Questions\ **Created:** [November 18, 2008, 3:30am UTC](https://boards.straightdope.com/t/effect-of-hyperinflation-upon-mortgages/473238 "2008-11-18T03:30:51Z")\ **Posts on this page:** 4\ **Page:** 2
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [November 20, 2008, 4:20pm UTC](https://boards.straightdope.com/t/effect-of-hyperinflation-upon-mortgages/473238/21 "2008-11-20T16:20:08Z")
> [@Throatwarbler\_Mangrove](#): > > …in a liberalized market, no bank or depository institution would survive the risk of loaning money at fixed rates for 20 years… Corporations and municipalities issue 30-year bonds quite commonly. Maybe that’s just a US phenomenon, too, but they’re not connected to Fannie or Freddie. ---
**Author:** ![HeyHomie](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/heyhomie/32/207_2.png) [@HeyHomie](https://boards.straightdope.com/u/HeyHomie)\ **Post date:** [November 20, 2008, 7:19pm UTC](https://boards.straightdope.com/t/effect-of-hyperinflation-upon-mortgages/473238/22 "2008-11-20T19:19:53Z")
> [@Throatwarbler\_Mangrove](#): > > It’s interesting to note that the concept of a “fixed rate mortgage”, where interest rates are fixed for the entire amortization period of 20+ years, is virtually unknown outside the United States - in a liberalized market, no bank or depository institution would survive the risk of loaning money at fixed rates for 20 years. They didn’t exist in the US either prior to the Great Depression. Such loans exist in the US almost entirely due to the American industrial policy of massive government intervention in the form of Fannie Mae and Freddie Mac. So then, how _does_ a mortgage work outside of the US? ---
**Author:** ![WormTheRed](https://avatars.discourse-cdn.com/v4/letter/w/bbe5ce/32.png) [@WormTheRed](https://boards.straightdope.com/u/WormTheRed)\ **Post date:** [November 20, 2008, 7:38pm UTC](https://boards.straightdope.com/t/effect-of-hyperinflation-upon-mortgages/473238/23 "2008-11-20T19:38:01Z")
> [@HeyHomie](#): > > So then, how _does_ a mortgage work outside of the US? Usually, you either take monthly ajustable rates or set them for 1-10 years (which then naturally are higher). The mortgage is still usually taken over 30-40 years. ---
**Author:** ![Throatwarbler\_Mangrove](https://avatars.discourse-cdn.com/v4/letter/t/8c91f0/32.png) [@Throatwarbler\_Mangrove](https://boards.straightdope.com/u/Throatwarbler_Mangrove)\ **Post date:** [November 20, 2008, 8:11pm UTC](https://boards.straightdope.com/t/effect-of-hyperinflation-upon-mortgages/473238/24 "2008-11-20T20:11:26Z")
> [@](#): > > Corporations and municipalities issue 30-year bonds quite commonly. Maybe that’s just a US phenomenon, too, but they’re not connected to Fannie or Freddie. > [@](#): > > So then, how does a mortgage work outside of the US? [Here’s how](http://repository.upenn.edu/cgi/viewcontent.cgi?article=1000&context=penniur_papers)(PDF) it works in the US. Basically, banks are in a business of borrowing money at a lower interest rate and lending it at a higher interest rate. If the bank borrows primarily in the short term (as they do), then they cannot lend at primarily a long term, at least not at a much higher interest rate, as it would result in a [duration mismatch](http://en.wikipedia.org/wiki/Bond_duration) on the balance sheets. Thus in most countries, e.g. Canada, an otherwise identical market, the maximum period that one can “fix” a mortgage rate is ~5 years, at a rate that will be higher than the current floating rate, and in American parlance the “ARM” is the only type of mortgage available. Banks in America can offer “fixed rate” mortgages because they have access to a secondary market in mortgage backed securities, created by Fannie Mae and the federal government, and thus are shielded from the interest rate risk. It’s sort of a bit more complicated than that in reality but that’s the gist of it. [Previous page](https://boards.straightdope.com/t/effect-of-hyperinflation-upon-mortgages/473238.md?page=1)