I just refinanced at 2.0% for 15 years in California and I was feeling like a champ for timing the bottom.
Do Americans always have fixed interest rates?
No, there are fixed and variable rate mortgages.
Danes Get 20-Year 0% Mortgages
131–140 of 331 posts
Re: Danes Get 20-Year 0% Mortgages
#132Earlier quoted context omitted.
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).
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.
Re: Danes Get 20-Year 0% Mortgages
#133Earlier quoted context omitted.
> 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.
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.
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)
Re: Danes Get 20-Year 0% Mortgages
#134In 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...
Re: Danes Get 20-Year 0% Mortgages
#135I 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 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".
Re: Danes Get 20-Year 0% Mortgages
#136Earlier quoted context omitted.
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.
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/…
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.
Re: Danes Get 20-Year 0% Mortgages
#137Earlier 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?
When bond rates go negative, 0% keeps people neutral.
Re: Danes Get 20-Year 0% Mortgages
#138I just refinanced at 2.0% for 15 years in California and I was feeling like a champ for timing the bottom.
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,…
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?
Re: Danes Get 20-Year 0% Mortgages
#139My 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…
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.
Re: Danes Get 20-Year 0% Mortgages
#140Earlier quoted context omitted.
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.
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 co…
> 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.