This interest rate configuration also has implications for households deciding on the maturity of their mortgage financing. When short-term rates are low and deemed unlikely to rise, households shorten the maturity of their borrowing, often counting on being able to switch to long-term mortgages when they feel interest rates may rise. As households switch, banks dependent on short-term funding have to hedge their new interest rate exposures. The larger interest rate exposures become, and the more dependent they are on leverage, the higher the probability of destabilising dynamics once expectations change. Households rushing to lengthen the maturity of their.
