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Danes Get 20-Year 0% Mortgages

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Re: Danes Get 20-Year 0% Mortgages

#171

Post by ganeshkrishnan »

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 loans are packaged into a company and then traded on the stock market. Your loan repayments are the company's "profits".

Bonds are created and then sold to share holders and you may even have a bond with your own mortgage in it.

Depending on the class of bond, you get paid more or less (this is the CDO)

The profits are from the bonds on the loan in the stock market.

Re: Danes Get 20-Year 0% Mortgages

#172

Post by matwood »

adam_arthur wrote: post #151
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. 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 :)

Sure, but the point is the buyer only looks at the price as a function of the payment they can afford. If the buyer can afford 2k/month they don't really care which part moves. Rates or price? If that means high rates and lower price? Fine. Low rates and higher price? Fine, but carries more risk as you (and I pointed out).

Re: Danes Get 20-Year 0% Mortgages

#173

Post by tonfa »

tomatocracy wrote: post #152
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…

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…

> 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.

It's been quite some time Switzerland have negative rates and the threshold for charging the customer are getting lower and lower, closer to 100k than to 1B (base fees have also increased as a result of negative interest rates, easier to increase the banking fees than charge negative rates :))

Re: Danes Get 20-Year 0% Mortgages

#174

Post by ganeshkrishnan »

saberdancer wrote: post #150
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…

Does this work the same way in Europe?

Its works the same across the world as everywhere there is fractional reserve banking. The other "Shariah Banking" is also just repackaged fractional reserve banking.

Re: Danes Get 20-Year 0% Mortgages

#175

Post by saberdancer »

acwan93 wrote: post #42
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.

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 refinanced my loan once, it took me 5-6 trips to the bank and bunch of signed papers. My rate is low enough and loan short enough that I won't do this again but the whole process in one of EU member states was quite slow and annoying.

Is this better in USA?

Re: Danes Get 20-Year 0% Mortgages

#176

Post by AnimalMuppet »

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”

But it is in fact how the majority of home buyers operate. "Can I afford it" translates into "can I afford the monthly payments", not "can I afford the total purchase price".

I saw this vividly when I bought my first house. It cost $61,000. My mortgage was at 9%. Two years later, mortgage rates had dropped to 7%, and my house was worth 90,000 (state appraised value). If I had bought the exact same house two years later than I did, I would have had the same monthly payment. That stayed constant, and the interest rate change drove a change in total price.

Part of the reason is: What is your alternative? Typically, renting. What's rent? A monthly payment. So if you're looking at a buy vs. rent decision, a big part of the decision is monthly expense of renting vs monthly expense of buying.

Re: Danes Get 20-Year 0% Mortgages

#179

Post by adam_arthur »

matwood wrote: post #172
adam_arthur wrote: post #151

Earlier quoted context omitted.

> 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 :)

Sure, but the point is the buyer only looks at the price as a function of the payment they can afford. If the buyer can afford 2k/month they don't really care which part moves. Rates or price? If that means high rates and lower price? Fine. Low rates and higher price? Fine, but carries more risk as you (and I pointed out).

Certainly true. Though higher price with lower rates, assuming monthly payment is the same, can be beneficial as a larger percentage of your payment goes towards principal. That only holds as a positive if price doesn't drop due to interest rate increases.

But I'd definitely rather be buying a house in a high interest rate environment... don't like the tail risk given how low rates are.

Re: Danes Get 20-Year 0% Mortgages

#180

Post by matwood »

mason55 wrote: post #153
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…

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…

Yeah, the real return is the equity. The house can act as a small savings account over time. But even that is questionable unless you're prepared to move out at some point, which means transaction costs and buying something new.

IMO, for primary residences you did the right thing (if you want a house of course).

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