Danes Get 20-Year 0% Mortgages • Hacker News Board

Re: Danes Get 20-Year 0% Mortgages

#151

Post by adam_arthur » Tue, Jan 05, 2021, 9:12 PM UTC

matwood wrote: post #143

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…

> 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 buye…

> 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 :)

Re: Danes Get 20-Year 0% Mortgages

#152

Post by tomatocracy » Tue, Jan 05, 2021, 9:13 PM UTC

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…

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.

Re: Danes Get 20-Year 0% Mortgages

#153

Post by mason55 » Tue, Jan 05, 2021, 9:14 PM UTC

matwood wrote: post #143

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…

> 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 buye…

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.

Re: Danes Get 20-Year 0% Mortgages

#154

Post by adventured » Tue, Jan 05, 2021, 9:14 PM UTC

marvin wrote: post #138

acwan93 wrote: post #42

Earlier quoted context omitted.

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?

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.

Re: Danes Get 20-Year 0% Mortgages

#155

Post by matwood » Tue, Jan 05, 2021, 9:15 PM UTC

asiando wrote: post #148

matwood wrote: post #143

Earlier quoted context omitted.

> 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 buye…

> 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”

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.

Re: Danes Get 20-Year 0% Mortgages

#156

Post by throw0101a » Tue, Jan 05, 2021, 9:15 PM UTC

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?

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.

Re: Danes Get 20-Year 0% Mortgages

#157

Post by saberdancer » Tue, Jan 05, 2021, 9:15 PM UTC

oblongx wrote: post #144

qppo wrote: post #139

Earlier quoted context omitted.

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.

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?

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.

Re: Danes Get 20-Year 0% Mortgages

#158

Post by dschuler » Tue, Jan 05, 2021, 9:16 PM UTC

asiando wrote: post #148

matwood wrote: post #143

Earlier quoted context omitted.

> 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 buye…

> 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”

OP is describing how incentives cause people to behave, not suggesting you do the same.

Re: Danes Get 20-Year 0% Mortgages

#159

Post by saberdancer » Tue, Jan 05, 2021, 9:17 PM UTC

fifticon wrote: post #97

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.

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.

Re: Danes Get 20-Year 0% Mortgages

#160

Post by BunsanSpace » Tue, Jan 05, 2021, 9:17 PM UTC

jandrese wrote: post #103

SoSoRoCoCo wrote: post #35

Earlier quoted context omitted.

> 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?

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 v…

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.