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Danes Get 20-Year 0% Mortgages

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Re: Danes Get 20-Year 0% Mortgages

#121

Post by yuliyp »

ganeshkrishnan wrote: post #118
ageitgey wrote: post #13

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…

>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 su…

Where is the profit on a 0% loan? Who would pay more than face value for a stream of payments going into the future?

Re: Danes Get 20-Year 0% Mortgages

#122

Post by mrep »

covid21 wrote: post #100
DevKoala wrote: post #12

I just refinanced at 2.0% for 15 years in California and I was feeling like a champ for timing the bottom.

Why can't people borrow in foreign countries? Mortgages in Germany seem to be below 0.7% atm.

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.

Re: Danes Get 20-Year 0% Mortgages

#123

Post by onlyrealcuzzo »

lumost wrote: post #36
tempsy wrote: post #2

only a matter of time when we start seeing negative rates on mortgages.

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.

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).

Re: Danes Get 20-Year 0% Mortgages

#125

Post by mywittyname »

yuliyp wrote: post #121
ganeshkrishnan wrote: post #118

Earlier quoted context omitted.

>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 su…

Where is the profit on a 0% loan? Who would pay more than face value for a stream of payments going into the future?

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.

Re: Danes Get 20-Year 0% Mortgages

#126

Post by elindbe3 »

yuliyp wrote: post #121
ganeshkrishnan wrote: post #118

Earlier quoted context omitted.

>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 su…

Where is the profit on a 0% loan? Who would pay more than face value for a stream of payments going into the future?

Someone who can only lend at negative real interest rates and/or projects negative market growth.

Re: Danes Get 20-Year 0% Mortgages

#127

Post by Hamuko »

tempsy wrote: post #2

only a matter of time when we start seeing negative rates on mortgages.

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.

Re: Danes Get 20-Year 0% Mortgages

#128

Post by nrmitchi »

eli wrote: post #114
tibbon wrote: post #69

Earlier quoted context omitted.

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 th…

The buyer can just waive the financing contingency. To the seller that's almost the same as making a cash offer.

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.

Re: Danes Get 20-Year 0% Mortgages

#129

Post by foogazi »

eli wrote: post #114
tibbon wrote: post #69

Earlier quoted context omitted.

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 th…

The buyer can just waive the financing contingency. To the seller that's almost the same as making a cash offer.

Higher risk for the buyer if financing falla through

Also not a guarantee for the seller - but they’ll get to keep the deposit

Re: Danes Get 20-Year 0% Mortgages

#130

Post by 0xfaded »

supernova87a wrote: post #66

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 parkin…

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.

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