Dutch-Style Mortgages: Could They Work In America?


The Dutch offer home mortgages with interest rates that go down automatically as the loan gets paid off. The premise is that as the loan amount reduces and the property’s value increases, the risk associated with the loan decreases.

Dutch-style mortgages recently arrived in the United Kingdom and have been making headlines here in the United States as people ask whether these types of mortgages could be a solution to the housing market’s woes.

Nathan Hartseil, branch manager for Main Street Home Loans in Hingham, Mass., doesn’t think so due to the fact our mortgages are based on a secondary market.

“Most of our loans are transferred or sold to a secondary market, and that’s what really keeps liquidity to keep lending in the United States,” said Hartseil. “You’re packaging loans in loan pools, you’re locking interest rates on a hedge.”

“That being said, we don’t have a structure in our secondary market or an appetite for loans with mortgage interest rates that go down automatically.”

Hartseil said although Dutch-style mortgages may not be a viable option right now, that doesn’t mean they couldn’t work in the future with some major adaptations. He pointed out that in the Netherlands there are more nationalized banks willing to step in and take the risks the secondary market takes here.

Erica Brenning, real estate investor and owner of Cash Buyers, agreed with Hartseil that Dutch-style mortgages have not been widely adopted in the U.S. because of the differences in mortgage market structures and regulatory environments between the two countries.

“In the Netherlands, long-term, fixed-rate mortgages and interest-only loans are common, while in the U.S., adjustable-rate mortgages and a higher proportion of mortgage debt held by investors are more prevalent,” said Brenning.

“If Dutch-style mortgages were to be implemented in the U.S., homeowners would likely benefit from the stability and predictability of their mortgage payments, but the impact on the housing market would depend on various factors, such as the adoption rate, terms of the mortgages, and the overall economic environment.”

Dutch-style mortgages could potentially benefit homeowners and address some housing affordability challenges, Brenning added, but there are also potential drawbacks, such as a reduction in adjustable-rate mortgage availability and implications for mortgage market stability.

The other point experts make is that in order to see the benefits of a Dutch-style mortgage, homeowners would need to stay in their homes longer.

That could make the “lock-in effect” that’s keeping the current housing market stagnant worse, for both buyers and sellers. A recently released paper from the Federal Housing Finance Agency states that “mortgage rate lock-in restricts mobility, results in people not living in homes they would prefer, inflates prices, and worsens affordability.”

A restriction on labor mobility reduces productivity and creates a deadweight loss to society. At the same time, if empty-nesters remain in homes that are too large, growing families are forced to stay in homes that become too small, according to the paper’s authors.

A recent report from Redfin found that Baby Boomers with empty nests own 28% of the nation’s large homes – with three or more bedrooms being considered large – while Millennials with kids own just 14%.

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