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Danes Get 20-Year 0% Mortgages

bloombergquint.com

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Re: Danes Get 20-Year 0% Mortgages

#181

Post by roenxi »

saberdancer wrote: post #157
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 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 differ…

Loans have a cost. If the banks can borrow at negative interest rates they are strictly better borrowing the money and not lending it out compared to a 0% loan. Any profitable plan with a 0% loan in it would in theory be more profitable without the loan.

In econ-101 it doesn't matter what the spread is, it isn't in itself rational to lend at 0%. That is taking on risk with no gain.

There must be some strange contortions in place to make this work. Whatever a "loan" is these days is going to be a totally regulatory construct with little connection to what they used to be way back when.

Re: Danes Get 20-Year 0% Mortgages

#184

Post by tomatocracy »

WillPostForFood wrote: post #98
chenster wrote: post #85

Earlier 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.

Inflation adjusted, median price in 1980 was 180k, it peaked up to 280k in 2007, then dropped back down to 190k by 2011, and has now risen back to 280k in 2020. Feels like a correction is due, but if rates stay so low, who knows.

If you think the overall market is one where supply of housing and/or land is constrained, it might be more relevant to adjust for earnings growth, not just inflation.

Alternatively, if you think for the market as a whole there are not meaningful constraints on supply of housing or land, the more relevant adjustment might be for increases in construction costs.

Re: Danes Get 20-Year 0% Mortgages

#185

Post by tomatocracy »

tonfa wrote: post #173
tomatocracy wrote: post #152

Earlier quoted context omitted.

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, close…

Fair point - I was thinking about Euro deposits.

Re: Danes Get 20-Year 0% Mortgages

#186

Post by f6v »

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…

Some places a starter apartment is $25000, and you can work remotely as a developer earning, say, $4000 a month net. It's just hard to wrap my head around 20 year mortgage.

Re: Danes Get 20-Year 0% Mortgages

#187

Post by stevehawk »

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”

You expect people on HackerNews to not accurately represent how society views something? There's a reason why the phrase "what's my monthly?" is a thing. Car dealers pushing 7 to 8 year loans is because people are worried about their "monthly." Same for rent-to-own places, mobile companies, and everyone else in the lending business.

Re: Danes Get 20-Year 0% Mortgages

#188

Post by Shivetya »

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”

One of the biggest financial issues facing this and other countries is people are conditioned to base affordability on the monthly payment. From cars and homes to every day subscription type services like Netflix to your cell bill.

Salesmen, well auto sales, are trained on the four square method to get you to buy. You could attribute the mortgage crisis a decade back as falling into this situation.

The barrier to buying a home used to be the down payment but creative financing is what got a lot of people in over their heads. It all about that cost per month.

Now people who over reach tend to forget all the other costs that come with auto and home ownership, namely insurance but owning a home has long term costs too.

https://www.consumerreports.org/consumerist/dealerships-rip-...

Re: Danes Get 20-Year 0% Mortgages

#189

Post by LatteLazy »

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…

I think these days the US and UK require originating banks to keep part of the loan to avoid the whole "sub prime", "it doesn't matter if it's shit as long as you're not the one holding it" approach.

Re: Danes Get 20-Year 0% Mortgages

#190

Post by AnimalMuppet »

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…

> And that money is not somehow just going to disappear over time.

It almost did, in 2008. Something like $3 Trillion evaporated in a very few months. To prevent a disaster that hurt a huge chunk of people, the Fed injected $3 Trillion back into the economy. The Fed was starting to draw that back down, but the economy got jittery, and then Covid happened.

We have the problem (too much money) because the price of fixing it was too high (short-term catastrophe).

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