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

Re: Danes Get 20-Year 0% Mortgages

#161

Post by matwood » Tue, Jan 05, 2021, 9:18 PM UTC

Triv888 wrote: post #149

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…

> This means that for most people, the best time to buy a house is when interest rates are sky high since falling rates are easy to take advantage of in the future. They can stay high or low for quite a long time...

You're right, and anyone buying a house today is banking on them staying low. But what other option do they have?

If interest rates go up to 6-7-8%...double digits, the housing market would be a bloodbath.

Re: Danes Get 20-Year 0% Mortgages

#162

Post by jseliger » Tue, Jan 05, 2021, 9:20 PM UTC

patatino wrote: post #99

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…

Well, I can't talk about Geneva or Zurich because both cities are very expensive. But generally, prices are going up, the down payment is normally 20% of the price. This is one problem, another one is how they calculate the risk. The "law" is you have to be able to pay the mortgage at 5% and that 5% cannot be more than 1/3 of your income. So if you buy a 1.25m house and take a 1m mortgage 5% is of that is 50k, so you…

But generally, prices are going up

This can be resolved any time cities want to build a lot more housing: https://www.theatlantic.com/ideas/archive/2021/01/anti-growt.... Outside of Tokyo: https://news.ycombinator.com/item?id=16704501, no or very few cities in the Industrialized world have chosen to simply build lots of housing, which will tend to bring prices down towards the cost of construction.

Re: Danes Get 20-Year 0% Mortgages

#163

Post by matwood » Tue, Jan 05, 2021, 9:21 PM UTC

saberdancer wrote: post #147

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…

But people sell houses based on price, not on the monthly payment. It's possible that high monthly payments reduce the ability to sell a house for a high price, but is this effect that strong?

Absolutely, which is why I said it's mostly irrelevant for the buyer. If the seller purchased in a lower rate environment, they may be in for a tough time. Down payments and equity can soften that blow a bit.

Re: Danes Get 20-Year 0% Mortgages

#164

Post by adventured » Tue, Jan 05, 2021, 9:23 PM UTC

alkonaut wrote: post #119

When interest rates are as low as they have been now for a long while (sub 2% for homes), the interest rate portion isn’t the limiting factor for how much you can afford to borrow. Instead, to prevent prices going to infinity, there is usually some kind of laws in place for maximum length such as 30, 50 or 100 years (infinite I.e interest-only was common at least in Sweden when rates were higher), a minimum down paym…

This effect has also resulted in the people of Denmark becoming the most indebted households on the planet [1], which is increasingly a common theme among such low rate borrowing nations. Norway and the Netherlands are two of the other most indebted household nations. So the real cost is far beyond the low interest monthly payments, it ends up becoming a society-level risk of economic debt suffocation as people load themselves with ever greater amounts of housing obligation, and it sets the stage for a hyper regressive society where housing is far too expensive and you have to bury yourself in debt to buy in. 0% mortgages are cheered, while the staggering monthly payments caused by the asset-inflationary nature of those 0% rates is ignored (resulting in eg Denmark becoming buried in household debt their incomes barely support).

[1] https://i.imgur.com/m5E6Tvd.png

Re: Danes Get 20-Year 0% Mortgages

#165

Post by saberdancer » Tue, Jan 05, 2021, 9:23 PM UTC

chenster wrote: post #85

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…

> 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 was interested in how it was possible so did a quick Excel calculation of monthly payment.

For a 100 000 USD home without a down payment, and a 10 year loan you'd pay 1738 USD per month for a total of 208 500 USD. I've used 17% yearly interest rate.

=PMT(0,17/12;10*12;100000)

Today if you used 3% interest rate, your monthly payment would be 965 USD for a total of 116 000 USD.

Buying homes on loans was insanely expensive in 70s-80s but probably the growth of prices of homes made up for it.

Re: Danes Get 20-Year 0% Mortgages

#166

Post by DevKoala » Tue, Jan 05, 2021, 9:23 PM UTC

hbcondo714 wrote: post #95

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.

Would you mind disclosing which lender you went with to get 2.0%? Are you paying points? I'm using Better.com for a refi in CA also but the "best" I can get is 2.625% with 0.053% ($330) in closing costs. They don't even list 2.0% Edit: Better.com is actually listing 2.0% rates but with $9,100 in points, based on my property and location in CA.

SemperHome. I locked the rate back in October and the closing took over two months, but they delivered the rate I wanted. No points either.

Also, the rates have gone up since then, I keep getting Zillow alerts about it.

Re: Danes Get 20-Year 0% Mortgages

#167

Post by adam_arthur » Tue, Jan 05, 2021, 9:24 PM UTC

matwood wrote: post #161

Triv888 wrote: post #149

Earlier quoted context omitted.

> This means that for most people, the best time to buy a house is when interest rates are sky high since falling rates are easy to take advantage of in the future. They can stay high or low for quite a long time...

You're right, and anyone buying a house today is banking on them staying low. But what other option do they have? If interest rates go up to 6-7-8%...double digits, the housing market would be a bloodbath.

It certainly would be, though it seems the Fed is committed to keeping rates low in perpetuity.

It's possible we hit a point where inflation ticks up due to recent stimulus/printing, and the Fed is forced to raise rates suddenly. The recent change to allow inflation to run past 2% indicates they're likely to let it run for a bit, though.

Re: Danes Get 20-Year 0% Mortgages

#168

Post by vachi » Tue, Jan 05, 2021, 9:24 PM UTC

The key term here is Danes, not residents of Denmark, but individuals who are born or naturalized Danes, even many of the naturalized ones do not get the same rates. By default Danes get ~5% downpayment where none Danes get ~40%.... yay

Re: Danes Get 20-Year 0% Mortgages

#169

Post by treelovinhippie » Tue, Jan 05, 2021, 9:24 PM UTC

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…

This has been the case in Australia for decades now. Average house price is AUD$1M. Standard deposit is 20%.

Government has just allowed first home buyers to get a mortgage on a 5% deposit. While that sounds great, it's obviously just encouraging more debt to flood the market and drive up prices.

And of course the government doesn't give a shit about housing affordability. The standard practice here is to get at least two mortgages: one for the house you want to live in, and one for an investment property that you'll eventually sell to pay off your other mortgage.

Sounds stupid right? Well, not when the government gives massive tax benefit handouts to property investors:

1. 50% capital gains tax discount.

2. Negative gearing: basically the losses on your investment property can be claimed as a tax offset against your other income.

[1] https://en.wikipedia.org/wiki/Capital_gains_tax_in_Australia

[2] https://en.wikipedia.org/wiki/Negative_gearing_in_Australia

Re: Danes Get 20-Year 0% Mortgages

#170

Post by tomatocracy » Tue, Jan 05, 2021, 9:25 PM UTC

coliveira wrote: post #146

oblongx wrote: post #144

Earlier quoted context omitted.

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 don't make money on interest rates, but on spreads. They lend the money at 0%, but in Europe banks can borrow at negative interest rates.

Some banks can borrow some of their funding requirements at negative rates for short periods of time.

Banks fund themselves using a variety of sources - bonds and money market instruments (of various types), equity, deposits, past profits (which is really the same as equity) and various central bank mechanisms. Of those the only ones where there is a decent chance of funding at negative rates are bonds/money markets and central banks.

Bank profits have been squeezed by negative rates precisely because they've been forced to pass on more of the rate reductions to borrowers than they've been able to recapture for themselves.