[HN Gopher] Danes Get 20-Year 0% Mortgages
___________________________________________________________________
Danes Get 20-Year 0% Mortgages
Author : harambae
Score : 166 points
Date : 2021-01-05 17:05 UTC (5 hours ago)
(HTM) web link (www.bloombergquint.com)
(TXT) w3m dump (www.bloombergquint.com)
| supernova87a wrote:
| There is a more basic economic question that I am curious about.
|
| I don't know how / can't believe how in the 1980s we had the era
| of 15% interest rates, etc (ok, I have some idea, central bank
| policies, inflation, etc) -- but it seems now we're in a
| "forever-0%-interest" situation.
|
| The reason I think is that interest/mortgage/etc rates just
| reflect how much people/banks/etc are willing to receive in
| profit for parking or lending their money somewhere. This has
| gone to 0% (almost no profit) because no one can offer good
| returns on the money. Or the people receiving the money have so
| many choices that the lenders are forced to compete to 0%. All
| the VC money sloshing around for free is because there is no more
| favorable place for that money to find profit and the 1-in-10 (?)
| shot that startups have is still better odds than average other
| opportunities.
|
| Right now it seems there is too much money searching for returns.
| And that money is not somehow just going to disappear over time.
|
| To take the opposite hypothetical, if you consider the
| accumulated wealth of all countries now, and the relatively low
| growth of most of them, how could it be possible that _all_ that
| money could find good investment return rates? Except for
| isolated pockets of growth, need for investment, where will we
| find broad returns anything greater than a few %?
|
| So, until something fundamental about the money supply changes,
| are we in for a long period of pretty much 0% returns?
|
| I would love to know some more sophisticated ways to understand
| the situation.
| marcosdumay wrote:
| > Right now it seems there is too much money searching for
| returns.
|
| Or too little returns available for all the money. This is the
| expected end-game for a well developed society, where people
| have most of what they need so extra capital can't move the
| needle anymore...
|
| What is kinda good. The problem happens where not everybody is
| included on that "well developed society" and the excluded
| people don't make a difference because they get too little
| money to participate.
| AnimalMuppet wrote:
| > And that money is not somehow just going to disappear over
| time.
|
| It almost did, in 2008. Something like $3 Trillion evaporated
| in a very few months. To prevent a disaster that hurt a huge
| chunk of people, the Fed injected $3 Trillion back into the
| economy. The Fed was starting to draw that back down, but the
| economy got jittery, and then Covid happened.
|
| We have the problem (too much money) because the price of
| fixing it was too high (short-term catastrophe).
| kzrdude wrote:
| There is an important point missing. The bank can always lend
| for a better interest than it gives to its customers. In these
| cases, they lend for a negative interest rate! Thus the
| customer pays 0% but the bank still makes money on the loan
| from for example a government bond of -1% that it is linked to.
| andromeduck wrote:
| Growth correlates best with productivity and productivity is a
| factor of capital effiency and manpower, and manpower increases
| with population.
| 0xfaded wrote:
| In Denmark's case, the rates are set to defend the krone's peg
| against the euro. Denmark being above average in terms of
| stability within the euro zone sets negative rates to shoo
| people from parking their money there, which would otherwise
| drive demand and increase the exchange rate for the krone.
|
| In Europe as a whole, yes, it is in deep stagnation. There is
| no where near enough investment opportunity for the wealth
| within the block, and this is made doubly worse by the
| governments subsidising all investment, essentially eating half
| the investment opportunity (while simultaneously creating a
| beaurocratic nightmare which also needs to be paid for). All
| the remaining wealth just piles into any old unproductive asset
| which can out perform the -0.6% bank rate.
|
| If you really want a laugh, read up on how banks are competing
| to acquire physical currency because cash is cheaper to store
| in a guarded vault than a database entry with the ECB.
| linuxftw wrote:
| We are in uncharted economic waters, and we have been for about
| 12 years. Not only is there 0% (or lower!) interest rates, we
| also have QE (central banks buying government assets directly),
| we have central banks buying corporate debt now!
|
| This is creating market bubbles. Worthless tech stocks is one
| place. Housing prices have soared. Whatever might happen might
| happen quickly.
| majormajor wrote:
| Have we ever been in "charted" economic waters?
| chenster wrote:
| > I don't know how / can't believe how in the 1980s we had the
| era of 15% interest rates, etc (ok, I have some idea, central
| bank policies, inflation, etc) -- but it seems now we're in a
| "forever-0%-interest" situation.
|
| Yes, 17-20% interest rate was not unusual in 70s, 80s, but home
| prices were much much lower back.
| cherrycherry98 wrote:
| I reckon housing prices would be lower now too if interest
| rates were at that level. Most people care about what their
| monthly payment is going to be. If they're paying 20%
| interest the principal is going to have to be low enough to
| accommodate their budget. Increase rates and watch demand dry
| up as the monthly cost skyrockets for those financing the
| purchase. Prices should drop accordingly.
| nrmitchi wrote:
| You're right.
|
| Interest rates have a direct affect on property value.
|
| Note that I do believe that this effect isn't quite as
| present in the "ultra-luxury" markets (or at least as a
| much lower impact)
| saberdancer wrote:
| I was interested in how it was possible so did a quick Excel
| calculation of monthly payment.
|
| For a 100 000 USD home without a down payment, and a 10 year
| loan you'd pay 1738 USD per month for a total of 208 500 USD.
| I've used 17% yearly interest rate.
|
| =PMT(0,17/12;10*12;100000)
|
| Today if you used 3% interest rate, your monthly payment
| would be 965 USD for a total of 116 000 USD.
|
| Buying homes on loans was insanely expensive in 70s-80s but
| probably the growth of prices of homes made up for it.
| WillPostForFood wrote:
| Inflation adjusted, median price in 1980 was 180k, it peaked
| up to 280k in 2007, then dropped back down to 190k by 2011,
| and has now risen back to 280k in 2020. Feels like a
| correction is due, but if rates stay so low, who knows.
| tomatocracy wrote:
| If you think the overall market is one where supply of
| housing and/or land is constrained, it might be more
| relevant to adjust for earnings growth, not just inflation.
|
| Alternatively, if you think for the market as a whole there
| are not meaningful constraints on supply of housing or
| land, the more relevant adjustment might be for increases
| in construction costs.
| GreeniFi wrote:
| What is the incentive for a bank to lend at 0%?
|
| Surely it's more profitable to do nothing?
| PoachedSausage wrote:
| It might be better in the short term, but after a while an
| angry mob starts banging on your doors.
| incrudible wrote:
| It's in fact more profitable to lend at 0%, because of negative
| interest at the central banks, negative interest for government
| bonds and even negative interest for certain corporate bonds.
| Combined with the immense cost of hoarding massive amounts of
| physical cash, there aren't many options left.
|
| While a corporate bond can go sour and a government bond may
| well be legally wiped out, a mortgage is at least
| collateralized with the property. Assuming that that the
| negative interest rate regime continues - which it most likely
| will - property prices will be driven up even further. Even if
| the mortgage goes into default, the repossessed property may
| end up being worth even more at that point.
| nostrademons wrote:
| And people wonder why the price of Bitcoin is rising...
| danhak wrote:
| Hedge against negative rates?
| cesis wrote:
| Central Banks can enforce negative interest rates.
|
| https://en.m.wikipedia.org/wiki/Negative_interest_on_excess_...
| GreeniFi wrote:
| Sheeesh. Bad news for entrepreneurship. As due to mortgage
| lending rules, it's very difficult to get a loan as a
| business owner rather than an employee with steady, bankable,
| salary
| imtringued wrote:
| It's also bad news for consumers because they cannot
| finance consumption with mortgages. You're never going to
| see consumer inflation if you're giving money to everyone
| except the consumers.
| synnejye wrote:
| It's effectively not 0, as explained by tveyben and others :)
| There's a fee that they charge and can change whenever they
| feel like it.
| dr-detroit wrote:
| They have been lending at negative interest rates since 2019.
| 0% is for suckers to get burned in the recession economy.
| treis wrote:
| They charge fees to issue mortgages. The 0% rate is not
| actually 0%. It's probably more like 0.25-1% and the bank is
| making up the difference through the fees.
| tyfon wrote:
| The Danish mortgage market is really strange. In practice the
| people buying property issues bonds in the private bond market
| (although in most cases it does go through an issuing bank).
|
| So if an investor has no other opportunity than 0% for their
| cash it's a "good place". Many banks in Europe has negative
| rates on deposits so it might be the better alternative for
| some.
|
| But there are no banking in a traditional way involved here
| where they have a product and lend to 0%.
| lucideer wrote:
| Denmark has had negative interest rates in the past (though
| typically for 10 years), so there's that hedge for starters,
| but there's also fees & gov subsidy/lending
| incentives/enforcement
| sleepysysadmin wrote:
| The actual interest rate is -0.75%. The bank is taking 0.75%
| disown wrote:
| Do Danes get tax deductions on mortgage interest? One of the best
| tax deductions we get is the one on mortgage interest.
|
| Also this isn't really that great since lower interest means
| higher home prices. I'd rather have high interest and low home
| prices if I were a buyer and try to pay if off ASAP or refinance
| to lower interest when the rate drops. Buy when interest is high
| and home prices low and sell when interest is low and home prices
| is high.
| useerup wrote:
| Danes can deduct around 25% of paid interests (and
| "contribution fees" on mortgages). A little more for paid
| interests below DKK 50000 yearly and a little less for paid
| interests above DKK 50000.
|
| A typical home can sell for DKK 4M. With a 20 year 0% interest
| and 80% of the 4M mortgaged (the maximum allowed), the
| "contribution fee" would be set at 0,75%.
|
| That would amount to interests (0%) and "contribution fee"
| (0.75%) yearly around DKK 24000 (1st year) of which 25% = DKK
| 6000 will be deductible.
|
| To put that into perspective:
|
| A. An average "medium level" worker will have an average income
| of DKK 466,660/year[1] and pay DKK 159,212 in taxes, leaving a
| post-taxes income of DKK 307,448.
|
| B. An unemployed will receive DKK 225,894/year and pay DKK
| 58,952 in taxes, leaving a post-taxes income of DKK 166.942
|
| So in reality the mortgage tax deduction does not amount to
| much. With those low interest rates it is around DKK 6000 or
| DKK 500/month for a typical family.
|
| Compare DKK 6000/year or DKK 500/month to: - a pair of Levi's:
| DKK 660 - a 4G/5G plan with 50GB/month: DKK 160/month - iPhone
| 12: DKK 7000
|
| [1] https://www.dst.dk/en/Statistik/emner/arbejde-indkomst-og-
| fo...
| djanogo wrote:
| Are the property taxes high?
| useerup wrote:
| There's a property tax of 1% for home values up to around
| DKK 3M, and 3% for the value above 3M.
|
| That is the based on the "official estimated value",
| however, which is typically conservative and lagging and
| therefore somewhat less (like e.g. 60%) of what the
| property actually sells for.
|
| The 3M is set so that the vast majority of _homes_ will not
| exceed this value.
|
| In addition to that we pay a "lot tax" which varies by
| municipality between 1.6% -3.4% of the value of the _lot_
| without the buildings.
| mywittyname wrote:
| > One of the best tax deductions we get is the one on mortgage
| interest.
|
| Not anymore. The rise in the standard deduction combined with
| caps on SALT deductions has drastically curbed the value of
| mortgage tax deductions. As a result, the number of people in
| the bottom 90% of income who itemize their taxes has fallen
| precipitously.
|
| https://taxfoundation.org/standard-deduction-itemized-deduct...
|
| This is a good thing, because SALT and mortgage interest
| deductions were horrible, regressive policies.
| njarboe wrote:
| From your link the only real change that the law made was to
| reduce the deduction of interest from a loan cap of $1
| million to $750k. The SALT limit of $10k hurt a lot of
| people, but the mortgage deduction is not part of the $10k
| SALT (state and local tax) limit.
| tathougies wrote:
| Yes, the increased standard deduction was one of the best
| things from the TCJA.
| andechs wrote:
| The tax deduction on mortgage interest is one of the most
| regressive pieces of tax policy.
|
| Those with more expensive housing benefit more from the credit.
| Non-homeowners do not benefit at all, and renters tend to be
| poorer than homeowners.
| sokoloff wrote:
| Renters are living in housing which is itself eligible for
| business loan deductions. If you believe that landlords use
| the cost of holding real estate as an input that shapes the
| supply side of the supply-demand balance in the broad rental
| market (as I do), then it seems that renters do indirectly
| benefit from the deductibility of the loans on the buildings
| in which they live.
|
| The mortgage interest deduction serves to put the purchasers
| of owner-occupied real estate onto a more equal footing with
| commercially-rented real estate. That seems like a valid
| public policy purpose, even though the mortgage interested
| deduction became substantially less valuable with TCJA-2017.
| matsemann wrote:
| But it keeps renters renters. I'd rather forego my tax
| deduction for owning my apartment and bake it into the
| normal tax. I feel it's unfair a friend can pay the same
| amount as me each month, but instead of paying down a loan
| he loses everything to a landlord. And in addition I also
| get to deduct the ~rents~ interest.
| sokoloff wrote:
| I'm not sure what you mean by "I also get to deduct the
| rents", but it doesn't match anything that I understand
| about the tax code.
| matsemann wrote:
| Lets say I pay $2000 each month in mortgage. Some of that
| is interest that I get to deduct on my taxes. So in
| practice I pay maybe $1700/month, _and_ most of that is
| really me saving by building equity in my apartment.
|
| Before I bought the apartment, however, I paid _more_
| than that in rent. And all that was money going to
| someone else. If anyone deserves a tax break, it 's those
| not privileged enough to yet own their own home.
|
| Edit: sorry, in my language "rente" is "interest", so I
| mixed them up and meant to say I get to deduct the
| interest part of my mortgage payment in my previous post.
| Probably where the confusion stems from.
| fifticon wrote:
| Dane here. A piece is missing. Interest rates may be 0%, but
| there is also an annual bank fee on the loans. As the interest
| rates have gone down, these fees have risen, and I believe the
| banks increasingly make their money on those. It's still good
| news for borrower, since the fees don't accrue interest.
| saberdancer wrote:
| You probably have a term "Effective interest rate" which takes
| into account various fees and interest rate. It was designed to
| counter this type of practices by banks where they would offer
| lower interest rate but higher fees which were less visible to
| the consumer.
| volkerp wrote:
| Bought an apartment in Germany this year. My effective interest
| rate is 0.74% fixed 20 years with a downpayment of 40%. The bank
| guy said the bank will make no money on this loan. They do it
| anyway because they want the object in the portfolio. Inflation
| in the housing market has been tremendous in the last years in
| germany.
| 317070 wrote:
| > The bank guy said the bank will make no money on this loan.
|
| Ha, I believe that the guy told you that, I don't believe he is
| correct. :) The bank is not a non-profit and is totally making
| money on that mortgage. A considerable margin in fact, given
| how much effort goes into it.
| tempsy wrote:
| only a matter of time when we start seeing negative rates on
| mortgages.
| useerup wrote:
| I have -0.28% on a mortgage which will be refinanced every 5
| year. The lenders actually pay me to store their capital. Weird
| times.
|
| In actuality, though, I also pay a 0.5% "contribution" fee
| which covers mortgage company administration and collective
| risk. So the effective rate is around 0.22%.
|
| For the 20y bonds the 0% interest is also just the actual bond
| rate. The administration fee will have to be added.
|
| The "contribution" fee rate depends on how much of the home
| value has been mortgaged. Below 60% it is typically around 0.5%
| because of the relatively low risk (you can probably always
| auction off the house at get at least 60% even in bad times).
| When mortgaged from 60 to 80% of the home value the fee is
| higher.
| mmastrac wrote:
| Or on savings accounts
| bzb6 wrote:
| Don't we have that already? Mandated by the ECB
| tveyben wrote:
| We already have this at least here in Denmark. Some banks
| have a cap (EG 50K DKr or 250K Dkr).
|
| https://blog.nord.investments/hvordan-undgar-du-de-
| negative-...
| Hamuko wrote:
| The interest rate on my mortgage is MAX(12 months Euribor rate,
| 0%) + 0.5%. Apparently some banks didn't realise to do the
| MAX() back in the day because surely the Euribor rates are not
| going to be negative, so there were some instances of negative
| mortgage rates here.
| api wrote:
| If that happens house prices will go apeshit.
| asdfasgasdgasdg wrote:
| There's not a significant difference between a 0% and a
| -0.125% mortgage. If one doesn't cause weird changes to the
| housing market I don't expect the other to.
| vageli wrote:
| There's not a significant difference between 0degC and
| 1degC either, but drastic changes occur at one and not the
| other.
| asdfasgasdgasdg wrote:
| 0C was the number given to that temperature specifically
| because that's where drastic changes occur in water. With
| most materials, there is no significant difference
| between 0C, -1C, and 1C.
|
| On the other hand, 0% has no known special relationship
| with the housing market, so there's not really a good
| reason to expect substantially different behavior at that
| value compared to -.125% or +.125%.
| ghshephard wrote:
| What's the argument for negative interest rates having any
| impact on house prices? I would think it would be mostly
| linear compared to 2%, 1%, 0%, -1%, etc...
|
| For example - if I have a 20 year mortgage on a $240,000
| house @ 0%, I have to pay $1,000/month. If the interest rate
| is -1% then I have to pay ~$900/month. I don't know if that
| extra $100/month really moves the market on home prices that
| much.
| nostrademons wrote:
| Once rates go negative people have an incentive to take out
| the biggest mortgage that they can, because they're making
| money on each.
|
| With negative rates the payments compound. If the interest
| rate is $900/month, you're paying off $1000/month in
| principal each month, and making $100/month in profit that
| is applied to the home equity. You can then go use that
| equity to take out _another_ loan on the property, make
| $100 /month in profit, repeat. Or go buy a different
| property with a different lender, if the bank starts
| getting suspicious. If you can't afford the increased
| payments...well, that's what a loan is for, particularly
| one that you're making a profit off. ;-)
| s1artibartfast wrote:
| I don't think there is a single tipping point the way you
| think. The same is true now if you consider the other
| ways you can spend your capital.
|
| a -1% rate on a mortgage with 20% down payment is
| effetely a 4% annual return on investment.
|
| If you can make 10%/yr in the stock market. and your
| mortgage is 3%/yr you should be maxing out the loan
| already and putting your cash back into stocks to make
| the 7% difference, not another house, if mortgages are
| 0%, you are making 10%, If mortgages are -1% you are
| making 11%, ect
|
| The downsides to this strategy in a negative interest
| rate scenario are the same as they are today: If all your
| capital is locked up in down payments, you are missing
| out on stock gains entirely. If all your capital is in
| the market, you are vulnerable to bubbles and swings
| there.
| nostrademons wrote:
| The reason folks don't do this is in your last sentence:
| stocks are not risk-free, and you're vulnerable to market
| downturns. Or sometimes people do do this, and they get
| swept out of the market when a downturn happens.
|
| Same thing with bonds, mortgages, and loans: there's
| default risk.
|
| _Taking out debt_ at a negative interest rate has no
| such default risk: since you borrowed the money in the
| first place, if you default the lender is out the
| principal, not you.
|
| (It's also worth noting that there _are_ a few risk-free
| assets that offer yields higher than 0%: U.S. Treasuries,
| and U.S. savings accounts. And there is a predictable
| carry trade of firms borrowing at 0 in the EU, converting
| their Euros to dollars, and then depositing in the U.S.
| at > 0. The risk then becomes currency risk, the chance
| that the dollar will depreciate, which is _also_
| happening.)
| JacobDotVI wrote:
| I think you need to look at it from monthly -> house price
| and not the other way around. If your budget / purchasing
| power is $1000 /m then your house budget is roughly as
| follows: $190,000 @ 5% interest
| $210,000 @ 4% interest $235,000 @ 3% interest
| $275,000 @ 2% interest $310,000 @ 1% interest
|
| [Note - not exact numbers; 30yr mortgage; mortgage
| calculator.org via guessing numbers until the monthly was
| close enough to $1k]
| bluedevil2k wrote:
| People would be incentivized to buy the absolute most
| expensive home they qualify for, which isn't always a good
| thing. Dove sorry is the key to investments.
| war1025 wrote:
| > Dove sorry is the key to investments.
|
| What does this mean? I am at a loss.
| nostrademons wrote:
| I assume it's an autocorrect from "diversity".
| api wrote:
| Mobile is the foot rub (autocorrect of "mobile is the
| future" I saw once).
| hordeallergy wrote:
| Psychology. Here in the UK the the lemming factor would
| kick in strongly - toilet paper, bicycles ... negative
| interest rate. The moment those words are uttered by the
| BBC you could expect the country to be covered with little
| puddles of excitement leading to the nearest bank. Some
| phrases trigger a threshold where reason loses strength -
| fomo? Panic?
| wrsh07 wrote:
| I think at that point everyone should be incentivized to
| hold a mortgage
|
| At the very least that increases demand for housing
| dramatically
| arnon wrote:
| We already had that last year here in Denmark :)
|
| https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-y...
| lumost wrote:
| At the end of the day isn't this just a regressive tax in favor
| of land owners? How many compounding cycles would it take
| before no one cares about a wipe out in land valuation as it's
| primarily owned by the extremely wealthy.
| onlyrealcuzzo wrote:
| In the US, >67% people own their homes:
| https://fred.stlouisfed.org/series/RHORUSQ156N
|
| Homeowners view this as a zero-sum game. If the 33% of non-
| homeowners are losing (and they definitely are), than the 67%
| of homeowners feel they must be winning (even though,
| arguably, the majority of them aren't).
| lumost wrote:
| As the price of homes rises, wouldn't you expect the 67% to
| shrink? fewer individuals would have the capital to afford
| a down payment, and some portion of the 67% will liquidate
| the equity for retirement and other activities.
| Redploy wrote:
| Contact Redploy4000@gmail.com if you're looking for a skilled,
| quick, reliable and confident ethical hacker or programmer.
| lostmsu wrote:
| @dang
| tveyben wrote:
| But one forgets that even though the interest rate is 0% the COST
| of the loan is !=0, we still have to pay a "bidragsssats" which
| is an "administrative fee" to have the loan
|
| The interesting part is that that _this_ rate can be changed over
| time to whatever the lone-shark wants it to be, thus - as always
| - you need to look at the TCO.
|
| AOP as it is in danish: "Arlig Omkostning i Procent" - aka the
| Yearly cost in percent...
| dcolkitt wrote:
| I'm curious why this hasn't been competed away. Short-term
| rates in Denmark are -0.6%. Couldn't banks just borrow short,
| write mortgages at 0% and pocket 60 basis points?
|
| It's a little screwy, because you're getting paid the lenders
| instead of the borrowers. But it's still fundamentally no
| different than a bank that borrows at 2.5% and writes mortgages
| at 3% APR.
| im3w1l wrote:
| It's very different, because it means you don't need the
| borrower to ever pay back. Meaning the banks will give loans
| to anyone the laws can be bent to allow lending to.
| SilasX wrote:
| Yeah, that's what I figured. Which I why I was pleasantly
| surprised to learn (at least according to an HNer in the know)
| that, in the UK at least, rates must be expressed in a way that
| accounts for all fees -- so something like this couldn't be
| called 0%.
|
| https://news.ycombinator.com/item?id=11082905
| beerandt wrote:
| In the US, this is basically why APR =/= APY.
|
| Where APR is the effective rate including fees.
| foobarian wrote:
| There is definitely a difference between APR and the nominal
| interest rate of a loan. APY is the same as APR if the
| compounding happens once a year.
| pkaye wrote:
| I though APY is just APR with interest compounding.
| xorcist wrote:
| So how much is the effective rate, typically?
| mywittyname wrote:
| > Back in 2012, policy makers drove their main rate below zero to
| defend the krone's peg to the euro. Since then, Danish homeowners
| have enjoyed continuous slides in borrowing costs.
|
| This is like a Canadian getting a 3.0% loan in USD to buy a
| house, then having the Canadian government fix the Canadian
| dollar such that it appreciate 3.0% pa against the USD. It's
| effectively a 0% loan, but due to obscure technicalities.
|
| It seems, the lender still earns interest, it's just that the
| interest is covered by the variance in exchange rates between
| currencies. So your DKK1000 mortgage payment is worth EUR1030
| after the first year, EUR1091 the next, etc.
| vachi wrote:
| The key term here is Danes, not residents of Denmark, but
| individuals who are born or naturalized Danes, even many of the
| naturalized ones do not get the same rates. By default Danes get
| ~5% downpayment where none Danes get ~40%.... yay
| SebastianKumor wrote:
| Not true, my friend(who is not a danish citizen) bought a flat
| in copenhagen and got 5% downpayment
| paozac wrote:
| Indeed, if you're a foreigner the conditions are far worse:
| higher interest rate, higher downpayment e lower loan amount.
| jschulenklopper wrote:
| In NL, some banks issued mortgages with interest percentages
| linked to Euribor interest rates (like +0.5% on 3-month Euribor
| rate). Once the Euribor dropped below -0.5%, the banks actually
| had to pay out the interest difference (if there weren't other
| bank charges added)... Some people, but likely to be just
| hundreds of customers, not much more, actually have a mortgage
| (with ING and Rabobank) for which they receive money at this
| moment.
|
| The same mortgage product cannot be bought anymore...
| dpoochieni wrote:
| Long BTC...
| trident1000 wrote:
| Downvoted but correct. This is a symptom of central bank and
| fiat absurdity. Trust is being broken and people are looking to
| a new form of trust.
| [deleted]
| renewiltord wrote:
| Looked it up and prices are comparable to America with far lower
| median income. I think the US situation is better for most
| people.
| mensetmanusman wrote:
| Negative Mortgage rates would be a funny way to implement UBI.
| House prices go to infinity for the lifetime of the buyer.
| danhak wrote:
| More like Feudalism 2.0. the "U" in UBI is important.
| andromeduck wrote:
| How to kill social mobility 101.
| seiferteric wrote:
| That (sadly) sounds exactly like the sort of thing that could
| actually fly in America with regards to UBI.
| imtringued wrote:
| You already live that reality if you own stocks or real estate.
| andrewmcwatters wrote:
| Housing prices internationally are already high, it's going to be
| an interesting next 15-30 years.
| DevKoala wrote:
| I just refinanced at 2.0% for 15 years in California and I was
| feeling like a champ for timing the bottom.
| Hamuko wrote:
| Do Americans always have fixed interest rates?
| elindbe3 wrote:
| No, there are fixed and variable rate mortgages.
| justinzollars wrote:
| What's the point of a 15 year when the 10 year nominal rate -
| inflation rate is less than the gains you will make in income?
| 1stcity3rdcoast wrote:
| Opportunity cost of the higher monthly payment surely factors
| in?
| mywittyname wrote:
| Yeah, I got a 15 year loan to save about 25% on my interest
| payments (3% vs 4%). Looking back, that was totally stupid
| because had I got a 30 year loan, and invested the
| difference (which I absolutely would have), I would earned
| a substantially greater return from the resulting stock
| boom.
| 1stcity3rdcoast wrote:
| Exactly and makes total sense. Plus, not everyone has
| infinite income, so people are "rate limited" into
| choosing the 30 over a 15 or 10.
| ahepp wrote:
| Isn't that another advantage of 30 year?
| 1stcity3rdcoast wrote:
| Yes, especially if you have an alternative place to park
| the money that earns N+1, where N is your interest.
| Anything above that is marginal gravy.
| hbcondo714 wrote:
| Would you mind disclosing which lender you went with to get
| 2.0%? Are you paying points? I'm using Better.com for a refi in
| CA also but the "best" I can get is 2.625% with 0.053% ($330)
| in closing costs. They don't even list 2.0%
|
| Edit: Better.com is actually listing 2.0% rates but with $9,100
| in points, based on my property and location in CA.
| chrisabrams wrote:
| Better is gonna give you pretty high rates -- try shopping
| with a local lender.
| DevKoala wrote:
| SemperHome. I locked the rate back in October and the closing
| took over two months, but they delivered the rate I wanted.
| No points either.
|
| Also, the rates have gone up since then, I keep getting
| Zillow alerts about it.
| scotcha1 wrote:
| which provider did you go with to get the 2%?
| DevKoala wrote:
| SemperHome late October.
| covid21 wrote:
| Why can't people borrow in foreign countries? Mortgages in
| Germany seem to be below 0.7% atm.
| markvdb wrote:
| That won't even work within the EU. All sorts of barriers
| exist between EU states making this extremely difficult if
| not impossible.
|
| You'll need a salary or other reliable income sources in the
| EU member state where you're buying, banks there won't offer
| you a mortgage. Never mind you're earning 5 times the bank
| employee's salary, just in another member state.
|
| You'll need free and clear ownership of a home in the EU
| member state where you're earning, or banks there won't offer
| you a mortgage for your home in another EU member state.
| You'll only get the loan by mortgaging the property local to
| the bank, not the actual property you're buying.
|
| Some limited exceptions exist for popular holiday countries,
| but banks will make you pay for that "privilege".
| mrep wrote:
| That exposes you to currency risk. Right now, 1 euro trades
| for about 1.23 dollars but that can go up or down (1:1.12 a
| year ago for example) which would effect your payments over
| the life of the loan because I get paid in dollars but german
| banks want to get paid back in euros.
| acwan93 wrote:
| I went through 3 refinances last year (also in CA) all at
| little to no closing costs for a 30 year fixed (4.00% - 3.25% -
| 2.5%). The math made sense every single time when factoring in
| the lower monthly payments and negligible closing costs.
|
| At this point I don't know what the point of the loan is
| anymore. Is there really any realistic intention to ever pay it
| off? Every single time I thought I had timed the bottom, but
| rates continue to drop.
| nostrademons wrote:
| The point of paying off loans at this point is so that when
| the whole system breaks down and people are looking for
| someone other than themselves to hold the bag, you have no
| business relations with anyone and nobody with a reason to
| point at you. Folks who are deeply entangled in the financial
| system will have a lot of potential enemies if the system
| fails to supply the expected standard of living to everyone.
| Folks who are basically self-sufficient with no major
| financial commitments can ride it out in obscurity.
|
| "Neither a borrower nor a lender be / For loan oft loses both
| itself and friend." -- Polonius, from Hamlet
| njarboe wrote:
| If you own property there is not obscurity or hiding from
| the system. Your name is on the dead and on view for the
| public (especially with the new law recently passed
| restricting the privacy of shell corps).
| nostrademons wrote:
| Right, but the point is to avoid people _caring_ about
| you, not people _knowing_ about you. It 's fine to have
| your name out there and on some public records about
| where you live if everybody is indifferent to your
| existence. It gets dicey when you owe somebody money, and
| they owe somebody else money, and then when there's not
| enough money to go around they're like "Shoot, where can
| I find some money? I know, I'll turn the screws on people
| who already owe me something and just collect what I'm
| owed." Little details like the precise payback terms of
| the loan and recourse available tend to get lost when
| court systems aren't functioning, and people only think
| "Oh, who owes me money that I can collect from?"
|
| (As a side note, this is an important and often-
| overlooked point about mass surveillance. There's a huge
| difference between large data-hoovering organizations
| _knowing_ about you and large organizations _caring_
| about you. Most people 's best defense against identity
| theft or blackmail isn't cybersecurity, it's boringness,
| and the law of large numbers.)
| lostmsu wrote:
| How come you had no closing costs? How much really they were?
| tathougies wrote:
| I refinanced last year for a 0.125% better interest rate,
| and the bank paid me $1000 to do it. It was the easiest
| decision I ever made. Basically, there was $5000 in closing
| costs and the bank paid me $6000 in points. If I paid money
| I would have gotten a lower rate, but I already had a great
| rate.
|
| Now, I'm refinancing again, but I'm paying some money. All
| in all, my net refinancing costs will be around $2000, but
| I have halved my interest rate almost, and will now be able
| to pay my home off about 10-15 years earlier (we just
| bought two years ago).
| acwan93 wrote:
| My broker said it was a standard $3K closing cost if at
| zero points, but I ended up taking some negative points as
| a credit towards closing costs.
| saberdancer wrote:
| I refinanced my loan once, it took me 5-6 trips to the bank
| and bunch of signed papers. My rate is low enough and loan
| short enough that I won't do this again but the whole process
| in one of EU member states was quite slow and annoying.
|
| Is this better in USA?
| frockington1 wrote:
| When I refinanced it was one phone call and then e-signed a
| document. And a week or two later someone drove to my house
| to get a wet signature to complete everything. It was with
| the same lender though so may have been streamlined because
| of that.
| marvin wrote:
| I've never understood mortgage refinancing in the US. Isn't
| the lender taking a loss when you refinance, since their
| 20-year asset will now pay less in interest than before? How
| does the lender make up for this loss, if the debtor isn't
| paying the difference every time they refinance to a lower
| interest rate?
| imtringued wrote:
| If you have a $1 million mortgage with 5% interest you are
| paying $50k interest per year. Meaning you are paying most
| of your interest at the beginning of the loan. If you are
| down to $750k after 10 years and refinance to 2% you have
| already paid around $350k in interest . The bank has
| already gotten the biggest chunk of the profits but takes a
| "loss" on the remaining portion.
| adventured wrote:
| The lender has no practical alternative in most cases other
| than to reject business outright. The reason they go along
| with it mostly willingly, is the borrower can typically go
| somewhere else for the loan. The current lender would just
| as soon keep you as a customer at 2% (vs the old 4%) than
| see you go somewhere else.
|
| They don't make up for the loss, they accept the lower rate
| of return vs losing the customer entirely.
| alkonaut wrote:
| When interest rates are as low as they have been now for a _long_
| while (sub 2% for homes), the interest rate portion isn't the
| limiting factor for how much you can afford to borrow.
|
| Instead, to prevent prices going to infinity, there is usually
| some kind of laws in place for maximum length such as 30, 50 or
| 100 years (infinite I.e interest-only was common at least in
| Sweden when rates were higher), a minimum down payment such as
| 15%, a maximum size of the mortgage relative to the income etc.
|
| Sweden now has all of these (!) so for most buyers, whether the
| interest is 0.5 or 3.5 makes very little difference. Most buyers,
| especially first time buyers, will be capped by one of the other
| limits regardless.
|
| As it has been pointed out, this loan isn't 0% since it's not the
| effective interest rate including fees that is 0%.
| adventured wrote:
| This effect has also resulted in the people of Denmark becoming
| the most indebted households on the planet [1], which is
| increasingly a common theme among such low rate borrowing
| nations. Norway and the Netherlands are two of the other most
| indebted household nations. So the real cost is far beyond the
| low interest monthly payments, it ends up becoming a society-
| level risk of economic debt suffocation as people load
| themselves with ever greater amounts of housing obligation, and
| it sets the stage for a hyper regressive society where housing
| is far too expensive and you have to bury yourself in debt to
| buy in. 0% mortgages are cheered, while the staggering monthly
| payments caused by the asset-inflationary nature of those 0%
| rates is ignored (resulting in eg Denmark becoming buried in
| household debt their incomes barely support).
|
| [1] https://i.imgur.com/m5E6Tvd.png
| ageitgey wrote:
| My friends in Geneva tell me that this has been a thing there for
| a long time. It has some pretty bizarre effects on the market
| (according to my friends):
|
| 1. House prices rise to the point where the down payment is
| essentially the price of the house. The house price itself
| becomes imaginary. What you are really worried about is the down
| payment.
|
| 2. Since house prices are now super high, only people who have
| saved up a big down payment can actually buy a house.
|
| 3. Banks turn away borrowers because they end up with too many
| loans on their books and no real incentive to get more.
|
| I would be interested to hear from people with more direct
| experience on how this plays out.
| izacus wrote:
| > My friends in Geneva tell me that this has been a thing there
| for a long time. It has some pretty bizarre effects on the
| market (according to my friends):
|
| One important difference between Geneva and Denmark though -
| Genevas extremely expensive housing market (in both purchase
| and rent prices) is driven by its geographical location. It's
| surrounded by mountains on most sides and sitting on a lake.
| This means there's pretty much no space to build more buildings
| to accommodate the influx of people moving there to work in
| science and politics.
|
| Geneva building prices were skyrocketing without those loans
| just because there was no way to build more.
| l33tbro wrote:
| Switzerland also has the highest level of household debt
| (which includes mortgages) in the world. Lending volume and
| price usually have a fairly linear correlation.
| nugget wrote:
| Another potential consequence is that if the price of your
| house falls more than the down payment you invested, you may be
| incentivized to simply walk away.
|
| The price could fall for any number of reasons: a market crash
| and country-wide depression widely impacting many people, or an
| individual owner who simply did no maintenance/upkeep over a
| period of years and the property is in disrepair. The disrepair
| scenario is common among elderly homeowners in the US.
| CogitoCogito wrote:
| Can Danes just walk away from their loans simply returning
| the home? I believe that's true in the US, but I don't think
| that's universal.
| joakleaf wrote:
| No. You have to pay the loan back. You cannot just walk
| away.
|
| I know several people in Denmark that were "stuck" with the
| house they were in after the price drops from the 2008
| crisis until prices rose above the mortgages again.
|
| You can probably make a deal with the bank somehow at
| higher interests, but they'll want there money back.
|
| You can also declare bankruptcy, but that is not simple and
| not without long term consequences I think.
| skinkestek wrote:
| > I know several people in Denmark that were "stuck" with
| the house they were in after the price drops from the
| 2008 crisis until prices rose above the mortgages again.
|
| My brother was hit too, though I can't recall the exact
| year.
|
| He ran a small profitable business in the Copenhagen area
| but was hit badly by the downturn in the economy. He
| eventually ended up selling at a loss (I think) and moved
| north with his family so now they also live in Norway.
| chenster wrote:
| Bankruptcy has a 7 years bad credit sentence in US. You
| are good as new after that. Not sure that's the case with
| other countries.
| distances wrote:
| Many countries don't have the concept of private
| bankruptcies at all. You may effectively be on the hook
| for the rest of your life if you really messed up. Don't
| know about Denmark though.
| nelgaard wrote:
| In Denmark you cannot just declare personal bankruptcy.
|
| You can ask a court to declare you bankrupt, but there
| are many requirements and rules. And the court may reject
| your application.
| marvin wrote:
| In Norway, personal bankruptcy requires an application to
| the debt enforcement office (a local government
| authority). If the application is accepted, the debtor
| gives up all their assets and submits to paying all of
| their earnings towards their debt, for five years. A
| politically determined subsistence sum is all they get to
| keep for themselves.
|
| After five years, the agreement ends and the debt is
| cleared. Each person can only apply once in their life.
| Any future runaway debts cannot be cleared without the
| consent of each creditor, which probably won't happen.
| Unsure how this is done in the rest of Scandinavia.
| tathougies wrote:
| Yikes. As an American, I would have thought Norway would
| have a much more lenient form of debt relief based on
| everything I hear about Scandinavia from our local press.
| But what you're describing seems incredibly harsh. I
| wonder if this is why Norwegians tend to be more
| financially responsible. Only being able to declare
| bankruptcy once certainly would make people learn their
| lesson? Is that true? Does it work in practice?
| gen220 wrote:
| In the US, bankruptcy is often used as an instrument of
| the wealthy, to escape earlier risky bets. And in some
| cases, to avoid taxes.
|
| Having such a severe punishment is probably more of a
| deterrence against risky behavior in the upper 5% of
| society, rather than a burden on the impoverished.
|
| Without knowing anything about it, I would assume that
| the politicially-negotiated subsistence amount is
| probably quite lenient to lower-income folks.
| lotsofpulp wrote:
| Even in the US, only 12 states are "non recourse".
|
| https://www.financialsamurai.com/non-recourse-states-walk-
| aw...
| danhak wrote:
| It's not true in all of the US (recourse vs. non-recourse).
| In all but 12 states, a lender can come after your other
| assets if the value of your collateral does not satisfy
| your debt.
| gamblor956 wrote:
| https://www.forbes.com/advisor/loans/recourse-loans-vs-
| non-r...
|
| Home mortages are recourse loans in all but 12 states
| (Alaska, Arizona, California, Connecticut, Idaho,
| Minnesota, North Carolina, North Dakota, Oregon, Texas,
| Utah and Washington).
| CogitoCogito wrote:
| Thank you to you and the others responding for the
| clarification. I guess I just took my California
| experience and incorrectly assumed it was similar in the
| rest of the US.
| anonAndOn wrote:
| This had a profound effect on house prices in Arizona
| back in 2009-2010. The Phoenix market, in particular, was
| flooded with borrowers who walked away when they had
| negative equity.
| usrusr wrote:
| Disappearance of those "0%" things would already be enough
| for prices to collapse once they have sufficiently adapted to
| the 0% situation. I guess the winner is, unsurprisingly,
| whoever owned the land before.
| matwood wrote:
| > 1. House prices rise to the point where the down payment is
| essentially the price of the house. The house price itself
| becomes imaginary. What you are really worried about is the
| down payment.
|
| Yes and no. This is also true in all markets. No one really
| buys a house based on the price. They buy it based on the
| monthly payment (price - down payment and interest rate). The
| price alone is mostly irrelevant for the buyer.
|
| This means that for most people, the best time to buy a house
| is when interest rates are sky high since falling rates are
| easy to take advantage of in the future. High rates also mean
| the original principal is likely low.
| f6v wrote:
| Some places a starter apartment is $25000, and you can work
| remotely as a developer earning, say, $4000 a month net. It's
| just hard to wrap my head around 20 year mortgage.
| onion2k wrote:
| In that position you don't need a mortgage. That's quite
| simple.
|
| On the other hand, where I live a reasonable small house is
| PS150,000 and senior developer wages are about PS30,000
| (net). People need mortgages.
| cosmodisk wrote:
| What you suggest here applies to 0.01% of any country's
| population. But yes,I'd love to have my London salary back
| in my own country.
| saberdancer wrote:
| But people sell houses based on price, not on the monthly
| payment. It's possible that high monthly payments reduce the
| ability to sell a house for a high price, but is this effect
| that strong?
| matwood wrote:
| Absolutely, which is why I said it's mostly irrelevant for
| the buyer. If the seller purchased in a lower rate
| environment, they may be in for a tough time. Down payments
| and equity can soften that blow a bit.
| asiando wrote:
| > The price alone is mostly irrelevant for the buyer.
|
| Sorry but wow. This is not the kind of comment I expect on
| HN, but rather from my uncle:
|
| "We got this new Lexus, it's only $500/month!"
|
| "Yes, for 200 years"
| stevehawk wrote:
| You expect people on HackerNews to not accurately represent
| how society views something? There's a reason why the
| phrase "what's my monthly?" is a thing. Car dealers pushing
| 7 to 8 year loans is because people are worried about their
| "monthly." Same for rent-to-own places, mobile companies,
| and everyone else in the lending business.
| adewinter wrote:
| When I decide to buy a $25k car because that's as much as
| I'm willing to spend I still need to determine what my
| "monthly" is. It matters what my monthly is because it is
| _a loan_ that I need to pay back every month. If I didn't
| need to think about what the monthly payment was I
| wouldn't need to take out a loan (unless I guess you got
| a magical loan that could only be paid off as a lump
| sum?).
|
| You're implying "worrying about" or wanting to know what
| the monthly payment is on a loan is a bad thing and I
| don't understand why.
| ZephyrBlu wrote:
| > You're implying "worrying about" or wanting to know
| what the monthly payment is on a loan is a bad thing and
| I don't understand why
|
| I believe what he is actually saying is that most people
| _only_ care about their monthly payment.
| DavidPeiffer wrote:
| >You're implying "worrying about" or wanting to know what
| the monthly payment is on a loan is a bad thing and I
| don't understand why.
|
| I stopped into a car dealer to look at a vehicle a couple
| years ago. I liked how it drove, could pay cash, but
| wasn't opposed to taking out a loan if I could get a
| better price overall (sometimes possible with fees banks
| pay to used dealers for getting a loan originated).
|
| In my experience, they brought out a sheet of paper with
| a range of what the monthly payment would be. I asked
| about interest rate, and the sales guy had no idea what
| interest rates the payments equated to - but he could get
| me an exact payment after doing a hard pull on my credit.
| They resisted negotiating on the total cost of the
| vehicle, but were very willing to extend the loan out to
| make the payment exactly what I wanted/could afford.
|
| I could see it wasn't going anywhere, told them to call
| me if they get serious about reducing the price, and
| left. I found a great car on the private market a short
| time later.
| [deleted]
| Shivetya wrote:
| One of the biggest financial issues facing this and other
| countries is people are conditioned to base affordability
| on the monthly payment. From cars and homes to every day
| subscription type services like Netflix to your cell bill.
|
| Salesmen, well auto sales, are trained on the four square
| method to get you to buy. You could attribute the mortgage
| crisis a decade back as falling into this situation.
|
| The barrier to buying a home used to be the down payment
| but creative financing is what got a lot of people in over
| their heads. It all about that cost per month.
|
| Now people who over reach tend to forget all the other
| costs that come with auto and home ownership, namely
| insurance but owning a home has long term costs too.
|
| https://www.consumerreports.org/consumerist/dealerships-
| rip-...
| renewiltord wrote:
| I wonder whether the ability to discern description and
| justification is correlated with other abilities. I suspect
| it is, but if anyone is aware of studies I'd be interested.
| AnimalMuppet wrote:
| But it is in fact how the majority of home buyers operate.
| "Can I afford it" translates into "can I afford the monthly
| payments", not "can I afford the total purchase price".
|
| I saw this vividly when I bought my first house. It cost
| $61,000. My mortgage was at 9%. Two years later, mortgage
| rates had dropped to 7%, and my house was worth 90,000
| (state appraised value). If I had bought the exact same
| house two years later than I did, I would have had the same
| monthly payment. That stayed constant, and the interest
| rate change drove a change in total price.
|
| Part of the reason is: What is your alternative? Typically,
| renting. What's rent? A monthly payment. So if you're
| looking at a buy vs. rent decision, a big part of the
| decision is monthly expense of renting vs monthly expense
| of buying.
| matwood wrote:
| People think of houses in 15/20/30 year loans, so yeah
| payment is what matters. Few people are fortunate enough to
| be able to buy their first house with a 15 year loan.
| Interest rates moving are big drivers on house prices
| because long loans are greatly impacted by small moves.
|
| Houses are nothing like cars. I haven't had a car payment
| in many years. I'm still a long ways from never having a
| house payment.
| dschuler wrote:
| OP is describing how incentives cause people to behave, not
| suggesting you do the same.
| loosescrews wrote:
| An important difference is that cars are a purchase with an
| expected eventual value of close to zero where as houses
| are typically seen as an investment with a goal of being to
| eventually sell it for more than you paid for it.
|
| This means that car payments are more of a cost of
| ownership and house payments are more of a reoccurring
| investment.
|
| As long as the house is actually a good investment, being
| able to afford the down and monthly payments is the most
| important thing. Rather than spending vs saving/investing,
| the trade-off becomes more of investing in real estate vs
| investing in something else.
| Triv888 wrote:
| > This means that for most people, the best time to buy a
| house is when interest rates are sky high since falling rates
| are easy to take advantage of in the future.
|
| They can stay high or low for quite a long time...
| matwood wrote:
| You're right, and anyone buying a house today is banking on
| them staying low. But what other option do they have?
|
| If interest rates go up to 6-7-8%...double digits, the
| housing market would be a bloodbath.
| adam_arthur wrote:
| It certainly would be, though it seems the Fed is
| committed to keeping rates low in perpetuity.
|
| It's possible we hit a point where inflation ticks up due
| to recent stimulus/printing, and the Fed is forced to
| raise rates suddenly. The recent change to allow
| inflation to run past 2% indicates they're likely to let
| it run for a bit, though.
| frockington1 wrote:
| If interest rates go up 6-7-8%, inflation would give most
| people an almost free house. Rent it out instead of
| selling and you have income for life.
| matwood wrote:
| Eventually, but salaries tend to lag inflation. Also
| would depend how quickly rates went up.
| imtringued wrote:
| A low interest mortgage has a longer duration which means
| the probability is much higher.
| mikestew wrote:
| Here in the U. S., specifically WA state, the shorter the
| mortgage, the lower the interest rate. For example, when
| we refinanced we could get 15 years @ 2.5% or 30 years @
| 3%. In that case, the "low interest mortgage" was the 15
| year mortgage.
|
| So either one of us has some miscommunication, or things
| are different where you live.
| adam_arthur wrote:
| > The price alone is mostly irrelevant for the buyer.
|
| The price is certainly relevant when it comes time to sell,
| and a high price due to low interest rates leaves you more
| vulnerable to price shocks in the event rates need to rise.
|
| Of course we haven't seen any major price depreciation due to
| rate increases in the last few decades :)
| omgwtfbyobbq wrote:
| We did a little bit in the 90s when interest rates
| increased, and I think the rate increase in the late 2000s
| was responsible for at least some of the drop in home
| values, although how much was obscured by the housing
| bubble, and low interest really acted like a multiplier
| there.
|
| https://fred.stlouisfed.org/series/CASTHPI
|
| https://fred.stlouisfed.org/series/FEDFUNDS
|
| But you're right in the sense that we haven't seen the drop
| in home values (or any high capital asset) associated with
| the increase in interest rates of the 60s through 80s.
| jackcosgrove wrote:
| That's because interest rates having generally trended
| down from the mid-teens to zero in the past forty years.
|
| Unless we're willing to go negative, that cycle is coming
| to an end.
| matwood wrote:
| Sure, but the point is the buyer only looks at the price as
| a function of the payment they can afford. If the buyer can
| afford 2k/month they don't really care which part moves.
| Rates or price? If that means high rates and lower price?
| Fine. Low rates and higher price? Fine, but carries more
| risk as you (and I pointed out).
| jbay808 wrote:
| If you can count on stable employment for the next 20
| years, you can make a plan like that. Otherwise your
| fallback might be to sell the house before it's paid off.
|
| From a HN perspective, this means it's hard to buy a
| house and do a startup; you'll never accumulate enough
| savings to reduce the risk.
| adam_arthur wrote:
| Certainly true. Though higher price with lower rates,
| assuming monthly payment is the same, can be beneficial
| as a larger percentage of your payment goes towards
| principal. That only holds as a positive if price doesn't
| drop due to interest rate increases.
|
| But I'd definitely rather be buying a house in a high
| interest rate environment... don't like the tail risk
| given how low rates are.
| nemo44x wrote:
| It really depends. If you want to pay 100% cash for a
| home then yes, high interest rates are the best time to
| buy. But with interest rates currently below market
| returns, you're maybe best off borrowing 80% and using
| your remaining cash for a diversified portfolio of liquid
| investments that will likely outperform your APR long
| term.
|
| If you view homes as day trading then yeah, there's risk
| in interest rates. But it's a home - a place to live if
| it's a primary residence. Ultimately if interest rates go
| up I don't really care since I don't plan on selling
| anytime soon. It doesn't change MY monthly payment. And
| if I did want to sell, well I'm staying in the same
| market - housing. So prices would drop across the board.
| So yes, maybe I can't sell my home for much profit or
| even a loss, but my home isn't the only one affected by
| this. Because you're in the same market, whatever you
| trade it for will have suffered a price drop as well.
|
| Likewise if you buy a home while interest rates are high
| and they fall. Your home will have gone up in value but
| so will any other home you want to buy. So you're in a
| similar situation.
|
| So I'm not worried about tail risk here. You do expose
| yourself to risk, however, if you buy more home than you
| can afford and we run into rough market conditions which
| put your income at risk. If you can't cover until things
| improve then you end up like the many people in 2008/2009
| that lost their homes due to being over leveraged
| (mortgages are leverage, after all). This isn't unique to
| homes, however. Margin has its risks.
|
| Here's how I see it, and I realize I'm fortunate: If
| interest rates begin to rise considerably over the next
| decade, reversing the trend of the last 40 years (!!!)
| then I'd consider pulling a portion of cash from certain
| investments to buy a home with cash after selling my
| current home for whatever p&l I get - if I want a new
| home. Or I'd just continue to live in my home and not
| worry about it. After all, I view my home first as a
| place for my family to live comfortably and then secondly
| as something I could make a return on one day maybe. But
| that isn't my primary concern.
|
| If anything, I'd probably stay in my current home and
| then buy a second home (a vacation home, rental, etc)
| with cash.
| mason55 wrote:
| Yeah we had a long-term plan to buy a house this summer and
| we stuck to our plan but it's definitely scary thinking about
| what will happen when interest rates rise, if we ever wanted
| to sell. I guess the counterpoint is that the whole market
| should move in lockstep, so if rates go up and the price of
| your house goes down, at least the rest of the market should
| be affected equally.
|
| It kills any idea of getting a real return on your house but
| frankly that was not a real thing through most of history
| anyway.
| matwood wrote:
| Yeah, the real return is the equity. The house can act as a
| small savings account over time. But even that is
| questionable unless you're prepared to move out at some
| point, which means transaction costs and buying something
| new.
|
| IMO, for primary residences you did the right thing (if you
| want a house of course).
| nemo44x wrote:
| I've come to terms with the fact that in most markets a
| home is not the best way to use your money in terms of
| return. However, you get to live in it and that's
| priceless. And like you said, it acts as a savings
| account over time and that generally works out as people
| will eventually downgrade after their kids have left.
|
| Another nice thing about owning a home is you can improve
| it (additions, adding bathrooms, etc) and certain
| additions more or less pay for themselves in terms of
| "getting your money back" over enough time. Again,
| probably not going to outperform the market, but you get
| to live in it. So even if the market tanks for a few
| years, I still get the benefits of whatever I've invested
| in my home.
|
| The trick is to not overspend on a home. Too many people
| use all their savings to make a downpayment and then use
| too much of their income to pay for it. This can not only
| get you in trouble but also puts you at a serious
| disadvantage in terms of accumulating wealth.
| treelovinhippie wrote:
| This has been the case in Australia for decades now. Average
| house price is AUD$1M. Standard deposit is 20%.
|
| Government has just allowed first home buyers to get a mortgage
| on a 5% deposit. While that sounds great, it's obviously just
| encouraging more debt to flood the market and drive up prices.
|
| And of course the government doesn't give a shit about housing
| affordability. The standard practice here is to get at least
| two mortgages: one for the house you want to live in, and one
| for an investment property that you'll eventually sell to pay
| off your other mortgage.
|
| Sounds stupid right? Well, not when the government gives
| massive tax benefit handouts to property investors:
|
| 1. 50% capital gains tax discount.
|
| 2. Negative gearing: basically the losses on your investment
| property can be claimed as a tax offset against your other
| income.
|
| [1]
| https://en.wikipedia.org/wiki/Capital_gains_tax_in_Australia
|
| [2] https://en.wikipedia.org/wiki/Negative_gearing_in_Australia
| patatino wrote:
| Well, I can't talk about Geneva or Zurich because both cities
| are very expensive. But generally, prices are going up, the
| down payment is normally 20% of the price. This is one problem,
| another one is how they calculate the risk. The "law" is you
| have to be able to pay the mortgage at 5% and that 5% cannot be
| more than 1/3 of your income.
|
| So if you buy a 1.25m house and take a 1m mortgage 5% is of
| that is 50k, so your salary has to be 150k.
|
| Point 3) is wrong, they make still a lot of money with loans, a
| lot of people still take 10 year loans for somewhere between
| 0.6% and 1%.
| jseliger wrote:
| _But generally, prices are going up_
|
| This can be resolved any time cities want to build a lot more
| housing:
| https://www.theatlantic.com/ideas/archive/2021/01/anti-
| growt.... Outside of Tokyo:
| https://news.ycombinator.com/item?id=16704501, no or very few
| cities in the Industrialized world have chosen to simply
| build lots of housing, which will tend to bring prices down
| towards the cost of construction.
| izacus wrote:
| Geneva is surrounded by mountains and a lake, it's hard to
| build more.
|
| Similarly for Zurich, there are significant hills around
| and most flat space is already built up.
| zhdc1 wrote:
| Zoning is also an issue.
| cosmodisk wrote:
| I think it's not just that but the fact that the country
| is literally packed. It's about 2/3 of my country's
| size,yet has 3 times more people. Haven't been to
| Switzerland but I can imagine most parks and other public
| spaces must feel quite full with people.
| notJim wrote:
| Switzerland is only the 13th most dense country in
| Europe. Notably, the UK and Germany are more dense.
| cosmodisk wrote:
| You can easily double it, because neither Germany nor UK
| have mountains covering half of the country.
| fredm-de wrote:
| Sadly, it's not always that easy. A large amount of swiss
| property is owned by pension funds, which are legally
| limited in their possible investments. So increasing the
| supply of housing will also defund the pension funds.
| zhdc1 wrote:
| From what I've seen, prices have been static and have even
| started to fall in some areas. There are a lot of people
| staring down a refinance on a 5 or 10 year interest-only loan
| in the middle of a recession.
|
| I haven't looked it up, but from what I've been told a lot of
| it also has to do with investment laws for Pillar 2 and 3
| retirement accounts (a certain percentage has to go into
| Swiss assets). Taking 1-1.5% over LIBOR/SARON or whatever the
| SNB rate is makes sense, but the fall-out in a couple of
| years if and when rates start to move up again isn't going to
| be pretty.
| namdnay wrote:
| 1/3 of your income OK, but why 5%? Are these variable rate
| mortgages?!
| Schweigi wrote:
| Fixed interest mortgages in Switzerland are usually only up
| to 10 years. The 5% underwriting limit is used to minimize
| the interest risk.
| zhdc1 wrote:
| 5% is more or less the long term average mortgage rate.
|
| Owners generally keep a mortgage on their property (~65% of
| the property value) to off-set wealth and property taxes.
| Residences are taxed by their estimated rental values,
| which is treated as income. Interest payments are tax
| deductible, while the principal on the mortgage lowers the
| amount owned for wealth taxes.
|
| The other issue is that most primary mortgages don't allow
| for early repayment, meaning that the principal either has
| to be payed off in full or refinanced once the payment
| period is over. Owners become conditioned to continuously
| roll over the principal on their primary mortgage.
|
| To answer your question, because the expectation is that
| residential property will be mortgaged through out the
| entire ownership period, banks have to make sure that
| someone who can afford the payment on a 1% mortgage can
| also afford the payment on a mortgage refinance if and when
| rates eventually go up.
| ganeshkrishnan wrote:
| >Banks turn away borrowers because they end up with too many
| loans on their books and no real incentive to get more
|
| Banks would never turn away borrowers even if there is 0
| percent mortgage or even slight negative (where they have to
| pay borrowers for the loan). That's because these loans are
| then sold to investment banks and are packaged as CDOs (and
| swaps and synth CDOs and so on ad nauseam) .
|
| This was the whole subprime mortgage credit crisis. The stock
| market goes up as there are now more 'SPEs'
| (https://en.wikipedia.org/wiki/Special_purpose_entity) being
| listed and more money being poured into stock markets.
|
| Banks usually don't keep the loans. They are sold off quickly
| for a higher profit.
| LatteLazy wrote:
| I think these days the US and UK require originating banks to
| keep part of the loan to avoid the whole "sub prime", "it
| doesn't matter if it's shit as long as you're not the one
| holding it" approach.
| csharptwdec19 wrote:
| At least in the US, it's not quite like that. There
| typically -are- penalties for certain things (i.e. if a
| loan goes into default or gets paid off via a refinance
| within X months) as well as regulatory rules and the ever-
| present GSEs, Fannie and Freddie.
|
| As long as the loan is 'conforming' (which the majority of
| loans on the up-and-up are) then Fannie or Freddie will
| guarantee it. Conforming loans must meet a number of
| criteria (Debt to income, income versus home value, etc.)
| to have a level of trust that the borrower will repay.
|
| Edit: And yes, if you get caught selling a non-conforming
| loan to Fannie/Freddie (i.e. underwriting discrepancies)
| you can get fined and forced to buy back the loan. In fact
| sometimes they will go on fishing expeditions and companies
| will have to prove their innocence, almost like an IRS
| Audit.
|
| There is also the 'servicing' aspect of a loan. Servicers
| basically collect payments for loans and forward them on to
| whomever backs the Mortgage. For Fannie/Freddie loans, what
| this means in case of a default is that the servicer will
| have to 'front' the money; this is what the housing
| industry was worried about at the start of COVID: before
| the guideline changes related to the virus, there were
| concerns about liquidity in that 'gap' between forbearance
| and (potential) forclosure.
| saberdancer wrote:
| Does this work the same way in Europe?
| ganeshkrishnan wrote:
| Its works the same across the world as everywhere there is
| fractional reserve banking. The other "Shariah Banking" is
| also just repackaged fractional reserve banking.
| apta_ wrote:
| As a Muslim, almost every "Shariah compliant" financing
| contract I came across is __not __compatible with Islamic
| Law (Shariah). Unfortunately, we 're just taking modern
| parasitic and usurious financial contracts, and wrapping
| them under "Islamic" terms, and selling them as such. Any
| actual investigation of such contracts reveals that
| they're nothing but interest and usury in disguise. Islam
| seriously warns about this sort of behavior.
|
| Under Islam, loans are are strictly an act of charity.
| There can be absolutely no contractual obligation for the
| lender to receive any benefit of any kind (monetary or
| otherwise) from the borrower in return for the loan. The
| borrower is encouraged to return more than the amount he
| borrowed, purely as a show of gratitude, but it can in
| now way be part of the contract, and in no way implied
| one way or another (like "off the record" sort of thing).
|
| True Islamic finance is pro risk sharing, with no
| exploitative and parasitic practices that we see today.
|
| Applying actual Islamic finance rules, we would
| immediately rule out things like stock shorting, put and
| call options, margin and leverage trading, mortgages,
| loans, selling debt for debt, and so on. Time and time
| again those practices have proven destructive to the
| economy, and further increase the wage divide.
| kasey_junk wrote:
| What about futures contracts?
| tomatocracy wrote:
| This varies depending on the market but many banks in Europe
| at least do retain large parts of their loan books, in part
| because the securitisation market was always and still is
| less developed here.
|
| Banks can and do routinely turn away higher grade borrowers
| with no other relationship angle (ie no short or long-term
| profitable cross-sell) because those loans are unprofitable
| for them and they can only make money on riskier credits.
|
| More broadly, sub-zero base rates are a real problem for
| banks and may actually hurt rather than help credit creation
| (since banks are likely to do less of something which is less
| profitable).
|
| The reason they're a problem is that most banks have a large
| portion of their funding in the form of deposits and passing
| on negative rates to depositors is very very hard - in my
| experience only the very largest (billions of dollars)
| overnight deposits get charged negative rates.
|
| All this does contribute towards the search for yield phase
| of the credit cycle (CDOs were just a part of that - everyone
| likes to blame them but they didn't cause the credit cycle
| which is really a "natural" phenomenon, although they did act
| to obscure the amount of leverage in the system and thus the
| likely size of the damage when the bubble burst). Everyone
| across the board wants to take more risk because they can't
| make their numbers stack up with the less risky part of the
| credit spectrum. As a result over the long term some credit
| becomes mispriced and when there's a wave of defaults credit
| investors wind up losing money overall then we start the
| cycle again.
| tonfa wrote:
| > The reason they're a problem is that most banks have a
| large portion of their funding in the form of deposits and
| passing on negative rates to depositors is very very hard -
| in my experience only the very largest (billions of
| dollars) overnight deposits get charged negative rates.
|
| It's been quite some time Switzerland have negative rates
| and the threshold for charging the customer are getting
| lower and lower, closer to 100k than to 1B (base fees have
| also increased as a result of negative interest rates,
| easier to increase the banking fees than charge negative
| rates :))
| tomatocracy wrote:
| Fair point - I was thinking about Euro deposits.
| yuliyp wrote:
| Where is the profit on a 0% loan? Who would pay more than
| face value for a stream of payments going into the future?
| mywittyname wrote:
| Lenders make money on the currency exchange.
|
| This doesn't make sense for Americans because they use a
| single currency for everything, but in Europe, there is a
| benefit to having a revenue stream in a desirable currency
| which is appreciating relative to the Euro.
|
| To the buyer, the loan looks like 0% because the buyer pays
| back the loan in Franks or whatever. The bank, meanwhile,
| gave out a loan of X Euros, and is receiving payments in a
| currency whose aggregate value is X+Y Euros. Their profit
| is Y. There's also the opportunity to make even more money
| selling options backed by these payments.
|
| This is a completely valid means of making money, but it
| carries substantially higher risk than single currency
| lending. Which is probably the reason most banks don't want
| to carry too many of these on their balance sheets.
| wrzuteczka wrote:
| Where is that Y coming from? The rates of say EUR and CHF
| diverging?
| gen220 wrote:
| Yes. If CHF outperforms EUR, and the mortgage payments
| are in CHF, a bank that has most expenses in EUR is
| making a profit.
|
| You can hedge against the performance of CHF by keeping
| proportional revenue streams of EUR.
| Chickenosaurus wrote:
| This theory doesn't make sense to me. Banks could simply
| buy foreign currency to achieve the same without the
| additional risk of defaulting lenders.
| poulsbohemian wrote:
| I'm not sure if / how this is done in Europe, but do
| these banks presumably also package these loans for sale,
| where a potential buyer of the note simply wants the
| recurring income stream for the next 15 or 30 years?
| That's the basic scheme here in the US anyway.
| elindbe3 wrote:
| Someone who can only lend at negative real interest rates
| and/or projects negative market growth.
| ganeshkrishnan wrote:
| The loans are packaged into a company and then traded on
| the stock market. Your loan repayments are the company's
| "profits".
|
| Bonds are created and then sold to share holders and you
| may even have a bond with your own mortgage in it.
|
| Depending on the class of bond, you get paid more or less
| (this is the CDO)
|
| The profits are from the bonds on the loan in the stock
| market.
| matwood wrote:
| When bond rates go negative, 0% keeps people neutral.
| throw0101a wrote:
| The (government) bonds in Netherlands are negative going
| out 30Y:
|
| * https://ca.investing.com/rates-bonds/netherlands-
| government-...
|
| Commercial bonds may not be too far off, so the spread may
| be enough for them to make a profit.
| oblio wrote:
| I wonder if Japan is similar. Haven't they had deflation for
| close to a decade?
| chenster wrote:
| In asia, generally down payment is very low, and even low
| interest that could expand up to 30, 40 years to pay back.
| The home price is usually much lower than western countries
| with a few exceptions like Hong Kong, Shanghai, etc.
| SoSoRoCoCo wrote:
| > 2. Since house prices are now super high, only people who
| have saved up a big down payment can actually buy a house.
|
| Isn't this what is happening right now in the US, that the
| down-payment is one of the barriers, since less than 10%
| (forget 20%) down has huge penalties long-term?
| jcomis wrote:
| No, not really. People are still readily getting loans with
| far less than 10%.
| tibbon wrote:
| In competitive markets, the issue isn't getting the loan -
| it's getting an offer accepted.
|
| Sellers will heavily favor a cash offer, as it's faster and
| far more assured of going through. One strategy I've heard
| about people doing is to take a pile of cash, acquire the
| property, and then refinance it pulling out 80% of what
| they put in so that they can both have a mortgage and have
| a stronger buying position. Add in things like dropping
| inspection, no contingencies, etc... and it gets really
| hard for many first time home buyers to compete.
|
| Additionally, coming in with an FHA 3.5% down, vs someone
| with a traditional 20% down - the sellers will favor the
| 20% as again it's less paperwork, easier, faster, and more
| certain to go through if the assessment is off by a few %.
|
| I had no idea about this before trying to buy a property in
| New England. So much of traditional advice doesn't include
| these details.
|
| What's weird about it to me is that this is one of the few
| places in US consumer markets where the seller cares deeply
| about your method of purchase and where the money came
| from. Buying a used car? They don't care if it's cash,
| credit, loan, etc generally. Hell, most car dealers _want_
| you to use a loan from them and would prefer that over cash
| in many ways. When you go to WalMart, they don 't deny you
| buying something for using a credit card vs cash.
| lotsofpulp wrote:
| >What's weird about it to me is that this is one of the
| few places in US consumer markets where the seller cares
| deeply about your method of purchase and where the money
| came from.
|
| It's not weird at all. Buying a car or TV from Walmart
| with a credit card does not carry anywhere near the risk
| of the transaction failing that buying real estate does.
|
| It's simply a function of the probability of the
| transaction succeeding (or "closing" as it's commonly
| referred to). With a loan, there are multiple parties
| whose requirements need to be met, from the lender, the
| home insurance, the title insurer, the seller, etc. The
| more entities you cut out, the less chance of the
| transaction failing. Underwriting a car is also much more
| simple and less risky for a lender than a house, which
| has much higher downside risk and unknowns.
|
| Not to mention the myriad laws resulting in legal
| liability and opportunity costs relating to real estate
| purchases, as opposed to a car purchase or a TV purchase
| where the worst that can happen is the seller takes it
| back and sells it to someone else.
| polygotdomain wrote:
| This 1000%, I sold in March right at the beginning of the
| pandemic in an incredibly competitive market. The final
| buyer was determined by the specifics of their offer, not
| just their final price. FHA with 3.5% down just adds
| additional risk for closing that 20% conventional
| doesn't. That risk is minimal, but it's a risk the buyer
| doesn't have to take.
|
| I'll also add that in competitive markets you also get
| into a situation where it's a bidding war and you're
| pushing what the property might appraise for. If you're
| doing 3.5% down, even though you might be approved up to
| X, the bank may not be willing to stretch the appraisal
| for the property. With 10% or 20% down, that's less of a
| concern.
|
| Also FWIW, for new cars, how you pay does matter. The
| dealer makes money on the financing, so they will give
| you a different cash price vs if you go with their
| financing. The reason being is that they want to sell you
| a "zero percent" loan that effectively bakes in the
| interest up front, so their financing will look better,
| but the final price will be higher.
| eli wrote:
| The buyer can just waive the financing contingency. To
| the seller that's almost the same as making a cash offer.
| nrmitchi wrote:
| I mean, not really.
|
| The financing contingency means that if your financing
| falls through, you get your earnest money back. Assuming
| a 500k purchase with 1% earnest money, waiving the
| financing contingency means that the seller receives _at
| least_ 5k.
|
| Even with a financing contingency waived, if the buyer
| has 100k, and their financing falls through, there is no
| way for them to magically make 400k appear for the sale
| to happen.
|
| If you are assuming that the buyer has the full purchase
| price in cash _anyways_ , and are only taking a mortgage
| because rates are so low, then ya, your point stands
| (waiving financing contingency along with proof of
| funds). But lets not pretend that having cash to cover
| the full price of the property is the common situation.
| foogazi wrote:
| Higher risk for the buyer if financing falla through
|
| Also not a guarantee for the seller - but they'll get to
| keep the deposit
| ProfessorLayton wrote:
| >What's weird about it to me is that this is one of the
| few places in US consumer markets where the seller cares
| deeply about your method of purchase and where the money
| came from.
|
| Often times sellers are trying to buy another home and
| have put a contingency offer (depending on the market) on
| another home, so they're heavily incentivized to accept
| an offer that moves quickly so that they can close
| sooner. A tiny bit more money may not be worth the risk
| of having multiple deals fall though, hence all-cash
| offers and traditional loans being more attractive.
|
| With that context, it's no wonder why sellers care so
| much about the method of buying.
| SoSoRoCoCo wrote:
| > this is one of the few places in US consumer markets
|
| Did you mean geographically? Or temporally? because if
| the second, I'm pretty sure that is a direct legal
| consequence of the 2008 housing meltdown that boned both
| sides of the lending equation.
| jedberg wrote:
| Even before 2008 it's an issue. I bought in 2008 and cash
| offers were still preferred over 20% down, which was
| preferred over less than 20% down. It's because when you
| make the purchase agreement, the buyer can get a bunch of
| outs, many of which are based on financing not getting
| approved. The more difficult your financing situation,
| the more chance there is of it falling though.
| squidlogic wrote:
| Getting a 10% downpayment in CA, for example, is almost the
| cost of an entire house in the midwest.
| jorblumesea wrote:
| PMI is usually low-ish. Sometimes as low as 0.25% but up to
| 2% generally. Largely depends on credit, lender, financial
| situation. It also goes away once that final 10% is paid off
| (when the load is 80% principal). It also isn't held against
| you in the sense that, it impacts your ability to get the
| loan. It just means you pay more out of pocket per month.
|
| It's definitely not ideal but it's not an overall huge drag.
| jandrese wrote:
| In the US according to my real-estate agent from 10 years ago
| it is common to take out a loan for the 20% down-payment so
| you don't get the long term penalties.
|
| This seemed to completely miss the point of a down-payment,
| but apparently banks were willing to go with it. They even
| offered the dual loans as a single product for convenience.
|
| If you work the numbers out it can theoretically save money
| over the long term vs. renting long enough to save the 20%,
| especially if it means you can put more money into risky
| stocks with high returns, but it also increases your risk of
| financial disaster if the bubble for some reason ever stops
| inflating, but that never happens as we all know.
|
| Personally I though it was too sketchy and went for a more
| traditional loan, but I know several people who took loans
| like that.
| BunsanSpace wrote:
| Thank god Canada created the CMHC which would insure loans
| and allow you a down payment as low as 5% for first time
| buyers.
|
| ironically because the loans where insured they offered
| lower interest rates on these loans, which meant they
| costed almost the same as 20% uninsured loans (you paid the
| insurance premium on-top of your mortgage payment).
|
| even if you have a 20% down it made more sense to put 5%
| down and put the rest into the index funds or a HISA.
| tathougies wrote:
| In the USA, first-time homebuyers can put 3.5% down with
| an FHA loan, but they have to pay insurance until they
| reach 20% equity.
| qppo wrote:
| Point 3 sounds made up. Banks are in the business of lending, I
| can't really imagine a scenario where they have an incentive to
| lend less.
| jwagenet wrote:
| I imagine there is a lack of incentive to take on additional
| 0% loans unless legally required, due to the repayment
| becoming a loss for not even covering inflation.
| oblongx wrote:
| How does the bank make money when it's zero interest loan?
| Serious question, the article didn't mention anything about
| it. I'm sure it still costs a few bucks in fees to get the
| loan but isn't the interest where the real profit is?
| coliveira wrote:
| Banks don't make money on interest rates, but on spreads.
| They lend the money at 0%, but in Europe banks can borrow
| at negative interest rates.
| tomatocracy wrote:
| _Some_ banks can borrow _some_ of their funding
| requirements at negative rates for short periods of time.
|
| Banks fund themselves using a variety of sources - bonds
| and money market instruments (of various types), equity,
| deposits, past profits (which is really the same as
| equity) and various central bank mechanisms. Of those the
| only ones where there is a decent chance of funding at
| negative rates are bonds/money markets and central banks.
|
| Bank profits have been squeezed by negative rates
| precisely because they've been forced to pass on more of
| the rate reductions to borrowers than they've been able
| to recapture for themselves.
| nelgaard wrote:
| It is not banks. It it credit unions and based on bonds.
| (banks are sometime affiliated with credit unions with
| similar names)
|
| The bonds have a 0% coupon but the value is now 96.725:
| https://www.nordea.dk/privat/produkter/boliglaan/Kurser-
| real...
|
| So the buyer of the house (seller of the bonds) would have
| to sell 3.3% extra bonds. And the buyer of the bonds gets a
| discount.
|
| As for why anyone would buy such bonds: The system is
| considered very stable (no US sub-prime mess) so if you
| have a lot of money, do not want to take risks (stocks and
| forex) and your bank charges you negative interest, it
| might make sense.
|
| As for the house prices. Yes they are going up. But you
| still have to pay back the money in 20 years. Or
| remortgage, but then it might not be at 0%.
|
| Another thing to consider is that property taxes are based
| on a public valuation that have some correlation with what
| you would be paying for a house (valuations is big mess
| now, but it will probably be fixed in less than 20 years).
| saberdancer wrote:
| Banks wouldn't offer a loan for zero interest if they have
| to "buy" money for interest. In these type of situations,
| they are either lending at negative interest rate from the
| central bank, or they are paying interest to central bank
| for "safekeeping" (central bank is at negative interest
| rate) or consumers are keeping money in banks at negative
| interest rate (less likely).
|
| What makes money for the bank is the difference of interest
| rate between money they buy and money they sell. Whether
| one or both are negative or positive doesn't really matter.
| Relative difference is what matters.
| roenxi wrote:
| Loans have a cost. If the banks can borrow at negative
| interest rates they are strictly better borrowing the
| money and not lending it out compared to a 0% loan. Any
| profitable plan with a 0% loan in it would in theory be
| more profitable without the loan.
|
| In econ-101 it doesn't matter what the spread is, it
| isn't in itself rational to lend at 0%. That is taking on
| risk with no gain.
|
| There must be some strange contortions in place to make
| this work. Whatever a "loan" is these days is going to be
| a totally regulatory construct with little connection to
| what they used to be way back when.
| PoachedSausage wrote:
| So, house price, Z = [Re] + [Im]
|
| Where Real part is down payment and Imaginary part is land
| price?
|
| Seriously though, this has been the situation in the UK for a
| long time. Today the down payment is equivalent to price of the
| house in the 1970's.
| LatteLazy wrote:
| Here in the UK some people had mortgages that were "x% below base
| rate". When the 2008 crash happened, rares fell to 0 or 0.25% and
| they were paid by their lender for the privilege of having
| borrowed.
| ur-whale wrote:
| Capitalism has gone full circle and come back the other side.
| harel wrote:
| Before the financial crisis of 2008 you could get those in the
| UK. I had one just as the fan got hit by something back then. 25
| years, 0%, no deposit. They were quite common. It was so good I
| didn't remortgage for 10 years until we sold and moved.
| sleepysysadmin wrote:
| The actual interest rate is -0.75%. If they are offering 0%
| mortgages, the bank is taking 0.75%.
|
| From your point of view as the buyer. You basically are being
| given an amount of free money to on the books take an amount of
| debt.
|
| The thing about negative rates, it's effectively society is
| saying 'do anything so long as it's not risky.' even if it doesnt
| make sense.
|
| It makes sense, tons of money is moving more conservative.
| Boomers are headed into retirement and need to move their money
| to safety. Except where are they investing it safely? In those
| bonds that are negative. They are losing money in their
| investment.
|
| There's also the reality that the boomers have not saved enough
| in their generation. Many of them are expecting underfunded
| social programs are going to keep them afloat. That's not going
| to happen. In many places those retired cant make ends meet and
| therefore you get silver crime.
| https://www.telegraph.co.uk/news/2017/11/20/poverty-ageing-j...
|
| So the boomers will raise the money to retire by inflating
| housing values and the younger generations buy this debt
| theoretically when they move into those bigger homes. That's not
| how it will work. It will inevitable result in exactly the same
| interest rates and inflation like the 70s and 80s during the WW1
| boomers.
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