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Danish bank launches negative interest rate mortgage

theguardian.com

121–130 of 152 posts

Re: Danish bank launches negative interest rate mortgage

#121

Earlier quoted context omitted.

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.

It's pretty ridiculous if the penalty isn't specified by the contract...

Whatever new rate you might get is not the business of your previous loan holder.

Re: Danish bank launches negative interest rate mortgage

#122

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.

It's fixed for 10 years. So yes, it's underperforming right now, but the fact that the yield curve has inverted gives them good reason to believe that there's going to be a recession in the next 10 years, so actually this is a relatively good return compared to losing money in the stock market or losing even more by buying the 10 year govenrment bond which right now is paying -0.58%.

Re: Danish bank launches negative interest rate mortgage

#123

Earlier quoted context omitted.

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.

It's pretty ridiculous if the penalty isn't specified by the contract... Whatever new rate you might get is not the business of your previous loan holder.

They are specified in the contract. If you sign the mortgage contract you are giving the bank steady business for the next 10 years in return of a lower rate. By breaking that 10 year agreement the bank loses money which they will charge you for.

Re: Danish bank launches negative interest rate mortgage

#125
post #38

Earlier quoted context omitted.

In Denmark the rents are not free market so they can't just rise with house prices.

What can they rise with? Some official inflation rate? Does the calculation of that inflation rate include house prices?

There are some details here: http://www.rentingindenmark.com/prices-and-rent/

Re: Danish bank launches negative interest rate mortgage

#126
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Re: Danish bank launches negative interest rate mortgage

#127

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.

I should have been more clear in my comment. What I meant was: There is no requirement that the maturity of a mortgage should be 30 years exactly.

Re: Danish bank launches negative interest rate mortgage

#128
post #87

Earlier quoted context omitted.

Could you refinance in say 5 years if rates were still negative then to get locked into 15 years of negative interest rates? Not sure on the mortgage market in Denmark, but in the US, refinancing mortgages common and is an industry of its own.

Generally a fixed term has a worse rate for the borrower than the floating rate (assuming the floating rate isn't expected to change hugely in the future). As a rule of thumb if you refinance from a fixed rate to a better rate you have to pay penalty fees if the rate is worse for the lender (better for you) relative to how much the lender would have made off you if the loan had continued at the previous rate. Because…

In Denmark, if you have a fixed-rate mortgage, you are always allowed to buy back the bonds at their nominal value. For that reason, you absolutely can save money by refinancing when the the interest rates go down (you still have to pay some fixed fees in order to do so). The funny thing is, that you can sometimes also save money when the interest rate goes up, because in that case you can buy back the underlying bonds at less than their nominal value. The savings in this case come in the form of tax savings, because you can deduct the (higher) interest.

Re: Danish bank launches negative interest rate mortgage

#129
post #117

Earlier quoted context omitted.

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.

Nobody in Europe does.

But I wonder if credit cards will follow suit and offer negative rates. Somehow I doubt it, though.

Re: Danish bank launches negative interest rate mortgage

#130
post #129
post #117

Earlier quoted context omitted.

> No one buys their groceries with loans Many people do. Credit Cards and Credit lines.

Nobody in Europe does. But I wonder if credit cards will follow suit and offer negative rates. Somehow I doubt it, though.

Nobody in Europe does.

Bullshit. It's not as popular as in the US, but it's not like credit cards are unheard of here.

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