Danish bank launches negative interest rate mortgage • Hacker News Board

Re: Danish bank launches negative interest rate mortgage

#111

Post by e_d_e_v » Thu, Aug 15, 2019, 5:23 AM UTC

barry-cotter wrote: post #103

opportune wrote: post #61

Earlier quoted context omitted.

>These bonds are considered to be very stable, about the same quality as state bonds >can usually recover most of the money through a forced sale This exact line of thinking is what led to the US real estate crash in 2008/2009

That’s true, except that you can only get a loan in Denmark if you have 20% of the purchase price to put down as collateral. That means sub prime mortgage lending doesn’t exist in Denmark and that combined with liar/NINJA loans was a substantial contribution to the US housing crash, together with securitisation. If it had been impossible to securitise mortgages with less than 20% down in collateral the housing crash…

> the lenders will only lend up to 80% of the value of the house (an ordinary bank loan must be used for the remaining fraction)

From olau's explanation, it seems that there is enough money flowing, that more than 80% can be financed (in some way) even if it is not in a single or collateral-backed loan.

Re: Danish bank launches negative interest rate mortgage

#112

Post by benjaminwootton » Thu, Aug 15, 2019, 5:36 AM UTC

petre wrote: post #106

dfawcus wrote: post #85

Earlier quoted context omitted.

That sounds similar to how Mortgages used to work in the UK in the 60s. One would get a mortgage from a Building Society for around 75% of the property value, and had to get a Bank Loan for the remainder which they couldn't cover from savings.

What has changed? How do mortgages work today in the UK?

We had 100% mortgages (no deposit) in the run up to the crises.

We even had 100%+ mortgages for a time which included a loan on top of your mortgage to modernise and furnish your property.

Nowadays, 5% deposit mortgages are available but 10% is more typical. We also have a popular government “help to buy” scheme which some think is reckless as it allows people to get into a more expensive new build home (which typically fall in value after first occupier) with a 5% deposit.

A loan for your deposit would not be acceptable as the mortgage company want to see you have skin in the game.

UK housing market is a complete mess and in my mind hugely overvalued. The can has been kicked down the road for over a decade now. If I didn’t have a family who needed secure housing situation I would sell to rent in a heartbeat.

Re: Danish bank launches negative interest rate mortgage

#113

Post by ferzul » Thu, Aug 15, 2019, 5:37 AM UTC

sleepysysadmin wrote: post #11

Not the world's first at all. https://tradingeconomics.com/switzerland/interest-rate Switzerland has been negative for years. Negative interest rates mean only 1 thing. The central bank is 100% confident that they are on the brink of deflationary spiral; much like Greece or Japan. This is all connected: https://news.ycombinator.com/item?id=20615403 https://news.ycombinator.com/item?id=20654624 https://tradingeconomic…

been told I should worry about it for years now, but Australia's economy hasn't broken yet (it's weak, but that just means it's doing better than comparable nations but less than what it could be if we weren't being mismanaged by the most incompetent government this side of the black stump). how can I rely on a forecast that is eternally bad? I guess the economy will turn sour eventually, but I can't rely on a prediction that's always bad news since I'll miss all the good.

Re: Danish bank launches negative interest rate mortgage

#114

Post by Phillipharryt » Thu, Aug 15, 2019, 5:43 AM UTC

adamlett wrote: post #49

NKCSS wrote: post #43

Earlier quoted context omitted.

Don't forget the mortage runs for 30 years and after 10 years, you are forced to pay the rate at that moment... so in the end, it will be ok :)

There no rule that the mortgage will run for 30 years. It’s just what most people choose. But there’s nothing stopping anyone from paying back the entire mortgage in 10 years.

I can't find all the fine details on this loan, but there are definitely loans that stop you from prepayment, or at least have a penalty associated with them. These penalties can be pretty large and definitely are a reason not to pay back the entire mortgage before 10 years. In this exceptional case I'm assuming there is a prepayment penalty for a large portion of that 10 year fixed rate period.

Re: Danish bank launches negative interest rate mortgage

#115

Post by Phillipharryt » Thu, Aug 15, 2019, 5:47 AM UTC

FelixGommen wrote: post #73

NKCSS wrote: post #43

Earlier quoted context omitted.

Don't forget the mortage runs for 30 years and after 10 years, you are forced to pay the rate at that moment... so in the end, it will be ok :)

No. That is not the case. The negative interest in this case is for loans over 10 years. If you want to have it over 30 years you still have to pay one percent.

Did you read the actual page? It says on the banks FAQ that "You can now get a fixed-rate mortgage with a maturity of up to 10 years, where the nominal interest rate is negative.". So the opposite of what you said.

Re: Danish bank launches negative interest rate mortgage

#116

Post by olau » Thu, Aug 15, 2019, 6:44 AM UTC

e_d_e_v wrote: post #111

barry-cotter wrote: post #103

Earlier quoted context omitted.

That’s true, except that you can only get a loan in Denmark if you have 20% of the purchase price to put down as collateral. That means sub prime mortgage lending doesn’t exist in Denmark and that combined with liar/NINJA loans was a substantial contribution to the US housing crash, together with securitisation. If it had been impossible to securitise mortgages with less than 20% down in collateral the housing crash…

> the lenders will only lend up to 80% of the value of the house (an ordinary bank loan must be used for the remaining fraction) From olau's explanation, it seems that there is enough money flowing, that more than 80% can be financed (in some way) even if it is not in a single or collateral-backed loan.

Indeed.

I think the situation currently is that you need 5% in downpayment yourself, then the bank can supply the 15% (at a much higher, individual rate) and the real-estate lender will provide the most secure 80%.

Re: Danish bank launches negative interest rate mortgage

#117

Post by csomar » Thu, Aug 15, 2019, 7:05 AM UTC

imtringued wrote: post #72

klipt wrote: post #44

Earlier quoted context omitted.

That would imply we're getting into a weird deflationary regime where money shrinks under negative interest rates, yet still buys more in the future!

The idea of injecting money into the economy by lowering interest rates works but people usually only get loans for houses or cars. No one buys their groceries with loans so they are ineffective at increasing prices in consumer goods and thereby lowering interest rates does not affect inflation despite the massive cash injection.

> No one buys their groceries with loans

Many people do. Credit Cards and Credit lines.

Re: Danish bank launches negative interest rate mortgage

#118

Post by novaRom » Thu, Aug 15, 2019, 7:14 AM UTC

spaceflunky wrote: post #105

jjoergensen wrote: post #17

Buying a house means taking over a payment and tax liability, it's not just about owning and controlling an asset. Confidence in the financial system is apparently so low that someone is willing to pay you fictitious money now in return of fewer actual cash in the future.

What am I missing here? why are they doing this? There has to be some other gain somewhere else.

The gain is they will loose less than borrowers.

Re: Danish bank launches negative interest rate mortgage

#119

Post by olau » Thu, Aug 15, 2019, 7:25 AM UTC

opportune wrote: post #61

olau wrote: post #29

Earlier quoted context omitted.

Some background: In Denmark, mortgages for housing are handled by special real-estate lenders (realkreditinstitutter) who issue bonds and handles defaults. These bonds are considered to be very stable, about the same quality as state bonds, as the lenders will only lend up to 80% of the value of the house (an ordinary bank loan must be used for the remaining fraction) so can usually recover most of the money through…

>These bonds are considered to be very stable, about the same quality as state bonds >can usually recover most of the money through a forced sale This exact line of thinking is what led to the US real estate crash in 2008/2009

This is not really my area of expertise, and it's unclear whether you're basing this comment upon an actual analysis or it's just a quick remark?

I was trying to explain how the bond rates can go so low.

The real-estate lenders have rigid policies in place as for who can get a loan.

Of course, enough correlated failures, and the system goes down.

But there was a crashing housing bubble in Denmark too in 2008/2009, and to the best of my knowledge none of real-estate lenders went down, although they did increase their fees to cover losses. Banks were crashing, though, until the bailouts started.

I personally think that the overall system would be more healthy if the real-estate lenders and banks in general did not protect their investors against losses, but just passed them on so you avoid this sure-everything-is-fine until it crashes. But again I don't know much about the banking world. Maybe that idea is too complicated.

Re: Danish bank launches negative interest rate mortgage

#120

Post by systemtest » Thu, Aug 15, 2019, 7:51 AM UTC

Phillipharryt wrote: post #114

adamlett wrote: post #49

Earlier quoted context omitted.

There no rule that the mortgage will run for 30 years. It’s just what most people choose. But there’s nothing stopping anyone from paying back the entire mortgage in 10 years.

I can't find all the fine details on this loan, but there are definitely loans that stop you from prepayment, or at least have a penalty associated with them. These penalties can be pretty large and definitely are a reason not to pay back the entire mortgage before 10 years. In this exceptional case I'm assuming there is a prepayment penalty for a large portion of that 10 year fixed rate period.

Those prepayment fines are basically what the bank is losing out on you. If you have a 3% mortgage and the current rate is 2%, then the bank would lose out 1% for the current mortgage period. That's the penalty.