Secret #42 – Mortgages are Only 20 Years Long in Many Countries

How would you like to have 10 fewer years left on your mortgage?

This seems unbelievable to Americans but more of the 42 countries in the graph below have 20-year mortgages than have 30-year mortgages. 

Source. van Hoenselaar, F., et al. (2021), "Mortgage finance across OECD countries", OECD Economics Department Working Papers, No. 1693, OECD Publishing, Paris. Highlight by John Wake.

Clearly, when the typical mortgage is 10 years shorter, the free-and-clear home ownership rate will be a lot higher and households will be wealthier. When fewer people have mortgage payments, spending falls less in downturns and the economy can handle recessions a lot better. 

Families and the economy will be more stable, recessions will be smaller and shorter, and the economy will grow faster.

20-year mortgages have much lower foreclosure rates than 30-year mortgages not just because you pay off the mortgage 10 years sooner but also because home owners build equity roughly twice as fast with 20-year mortgages. If you have financial problems after several years of ownership, you’ll have paid off many more thousands of dollars of the mortgage compared to a 30-year mortgage. You’re a lot more likely to have enough equity to sell the house and make money and avoid foreclosure or a distressed sale altogether. See also, here and here.