Fortunately there is a proven middle ground between the distorted American system and a floating-rate free-for-all. In Denmark homebuyers can borrow at 30-year fixed rates, and mortgages are prepayable. About half of borrowers fix for three decades. Yet there is no problem of “locked in” homeowners because a seller can end a mortgage by buying it back at its market value, which falls when rates rise, thereby cashing out the value of their interest-rate fix. Alternatively they can transfer their mortgage to the home’s new owners. The result is greater dynamism: in the first quarter of 2023 housing transactions were down by only 6% on a year earlier, compared with 22% for existing homes in America.
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