Buying a house may be one of the biggest investment decisions in a person’s life. Buying a house may also mean that the buyer will be locked in one place for a while, so before choosing a property to purchase, the buyer should decide what country they would like to live in. This decision is personal and unique for each individual.
There are many factors to consider before deciding where to purchase a home. The factors may include the willingness to move, quality of life, personal interests, and financial situation. In fact, the financial situation may be one of the most important factors when deciding to purchase a property in any country.
From a financial standpoint, cost of living and affordability are important factors to consider. Cost of living refers to the amount of money needed for things such as groceries, gas, entertainment, etc. Affordability, on the other hand, refers to the wages, prices of property, and interest rates for mortgages.
Interest rates on mortgages may seem like a minor parameter, but even a small increase in interest rate may cost thousands of dollars to a borrower with a long-term mortgage. This article looks at the mortgages of the ten biggest economies in the world from the most expensive to cheapest mortgage rate available. The interest rates presented are for 5-year fixed mortgage loans unless stated otherwise.
The following list is arranged from the highest mortgage interest rate to the lowest one.
India – 6.40%
Mortgage rates in India are the highest among the top ten biggest economies in the world. India is developing rapidly. Because it is a developing country, it is considered a riskier place to keep money compared to developed countries such as the USA, Canada, or Germany.
This means that Indian long-term bond yields are much higher than long-term bond yields of developed countries. Because of the high long-term bond yields, India has one of the highest mortgage rates in the world. Indian mortgage rates also often depend on the loan amount. There are some banks that set their interest rates fixed regardless of the loan amount, but many of them charge a certain premium.
The following table provides an overview of the premium that a borrower may expect to pay depending on the loan amount. It is important to note that premiums are not mortgage rates because the premiums are charged on top of the base mortgage rate.
| Indian Mortgage Rate Premiums by Loan Amount | |
| Loan Amount | Premium |
| Up to ₹3,000,000 | 0.00% |
| ₹3,000,000 to ₹7,500,000 | 0.00% – 1.00% |
| Over ₹7,500,000 | 0.15% – 1.25% |
China – 4.10%
In China, the Bank of China sets benchmark interest rates. Currently, the Bank of China’s benchmark interest rate for a 5-year fixed mortgage rate is equal to 4.10%. Recently, Evergrande, a Chinese construction company, found itself illiquid and unable to cover its interest payments.
With this news, the Bank of China decided to lower mortgage rates and increase the approval rate for new applicants. This decision may have been made to help the company sell its properties and catch up on interest payments and avoid default. Current fixed mortgage rates in China are presented in the table below based on their term.
| Chinese Fixed Mortgage Rates by Term | |
| Term | Rate |
| 1 Year | 2.80% |
| 2 Years | 3.00% |
| 3 Years | 3.30% |
| 4 Years | 3.80% |
| 5 Years | 4.10% |
South Korea – 3.51% Average Rate
South Korea has seen a rise in inflation in the past year. Because of that, the Central Bank of South Korea raised the lending rate from 2.66% to 2.96% over the past year. This increase gradually affected the bond yields of South Korea from short-term to long-term bonds. As of November 2021, the average mortgage rate in South Korea was 3.51%. Additionally, South Korea is considering adding another mortgage term of 40 years, which would be the longest term currently offered.
Canada – 1.98%
Currently, Canadian mortgage rates are experiencing a gradual increase in mortgage rates. As of January 2022, the lowest 5-year fixed mortgage rate available in Canada is 1.98%. The Bank of Canada chose to pursue an expansionary monetary policy at the beginning of the pandemic. Over the past 2 years, the Canadian long-term bond yields decreased dramatically, which led mortgage rates to decrease as well. Recently, the Bank of Canada started tapering its bond purchasing program, which led to a gradual increase in long-term bond yields and Canadian mortgage rates.
United States – 1.75% for 10-Year Fixed
The United States has recently seen a large decline in interest rates. This decline is attributed to the response of the Federal Reserve to the Covid-19 pandemic that happened at the beginning of 2020. At the end of 2021, the Fed announced that it will start increasing the overnight rate and stop purchasing long-term government bonds. An increase in overnight rates affected the prime rates in the USA.
The announcement about the discontinuation of purchasing long-term bonds led to an increase in yields for long-term government bonds, which in turn led to an increase in mortgage rates. In January 2022, mortgage rates for a 10-year fixed mortgage in the United States. The table below provides information on the US mortgage rates for different term lengths.
| Mortgage Rates for the US by Term | |
| Term | Rate |
| 30-year fixed | 2.75% |
| 20-year fixed | 2.50% |
| 15-year fixed | 1.875% |
| 10-year fixed | 1.75% |
United Kingdom – 1.44%
Even though the United Kingdom is located very close to the European Union, it has its own currency and central bank. Because of that, mortgage rates in the United Kingdom may differ drastically from the mortgage rates in the European Union. Mortgage rates in the United Kingdom have been declining since the year 2000.
At the beginning of the COVID-19 pandemic, mortgage rates in the UK were already quite low, so during the pandemic, the 5-year fixed mortgage rate increased from 1.66% to the highest of 2%. Since the highest mortgage rate during the pandemic, the rate has been steadily decreasing and is now at 1.44%.
France – 0.90% for 15-Year Fixed
France, issues their mortgages in Euros. This means that the mortgage rates in France are tied to the monetary policy conducted by the European Central Bank. The European long-term bond yields have been low for years, which in turn helped borrowers in France to take advantage of some of the lowest mortgage rates that start at 0.90%.
Italy – 0.85% 20-Year Fixed
Italy is another country that uses the Euro as a base currency. Because of that, Italian banks offer mortgage loans at a similar interest rate as any other country that uses Euros. Currently, the Italian mortgage rate for 20-year fixed mortgage is equal to 0.85%.
Japan – 0.75% for 10-Year Fixed
Japan is the country with one of the lowest mortgage rates on our list. Currently, the Japanese 10-year fixed mortgage rate stands at 0.75% per annum. Such low mortgage rates in Japan are due to the target rate the Central Bank of Japan has been maintaining for a while. Short-term interest rates on Japanese government bonds are -0.1% while long-term bonds are at around 0%. Because of such low interest on government bonds, their interest rates on various loans are one of the lowest in the world.
Germany – 0.40%
German mortgage rates are one of the cheapest in the European Union. The European Union has been keeping the prime rate at 0% for a long time. In 2016, the European Central Bank set the prime fixed-rate at 0% and has been keeping it at that point since then. Because of such low prime rates, European bond yields are very low for both short-term and long-term bonds.
Many European countries have a very low mortgage rate for the reason described above, and Germany is only one example of a European country with low mortgage rates. The following table provides information on the available mortgage rates for each term length in Germany.
| German Fixed Mortgage Rates by Term Length | |
| Term | Rate |
| 5 Year | 0.40% |
| 10 Years | 0.43% |
| 15 Years | 0.71% |
| 20 Years | 0.93% |
| 30 Years | 1.19% |
