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Danes Get 20-Year 0% Mortgages

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Re: Danes Get 20-Year 0% Mortgages

#191

Post by omgwtfbyobbq »

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 :)

We did a little bit in the 90s when interest rates increased, and I think the rate increase in the late 2000s was responsible for at least some of the drop in home values, although how much was obscured by the housing bubble, and low interest really acted like a multiplier there.

https://fred.stlouisfed.org/series/CASTHPI

https://fred.stlouisfed.org/series/FEDFUNDS

But you're right in the sense that we haven't seen the drop in home values (or any high capital asset) associated with the increase in interest rates of the 60s through 80s.

Re: Danes Get 20-Year 0% Mortgages

#192

Post by frockington1 »

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.

If interest rates go up 6-7-8%, inflation would give most people an almost free house. Rent it out instead of selling and you have income for life.

Re: Danes Get 20-Year 0% Mortgages

#193

Post by adewinter »

stevehawk wrote: post #187
asiando wrote: post #148

Earlier quoted context omitted.

> 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.

When I decide to buy a $25k car because that's as much as I'm willing to spend I still need to determine what my "monthly" is. It matters what my monthly is because it is _a loan_ that I need to pay back every month. If I didn't need to think about what the monthly payment was I wouldn't need to take out a loan (unless I guess you got a magical loan that could only be paid off as a lump sum?).

You're implying "worrying about" or wanting to know what the monthly payment is on a loan is a bad thing and I don't understand why.

Re: Danes Get 20-Year 0% Mortgages

#194

Post by fredm-de »

jseliger wrote: post #162
patatino wrote: post #99

Earlier quoted context omitted.

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.

Sadly, it's not always that easy. A large amount of swiss property is owned by pension funds, which are legally limited in their possible investments. So increasing the supply of housing will also defund the pension funds.

Re: Danes Get 20-Year 0% Mortgages

#195

Post by tathougies »

marvin wrote: post #115
chenster wrote: post #80

Earlier quoted context omitted.

Bankruptcy has a 7 years bad credit sentence in US. You are good as new after that. Not sure that's the case with other countries.

In Norway, personal bankruptcy requires an application to the debt enforcement office (a local government authority). If the application is accepted, the debtor gives up all their assets and submits to paying all of their earnings towards their debt, for five years. A politically determined subsistence sum is all they get to keep for themselves. After five years, the agreement ends and the debt is cleared. Each perso…

Yikes. As an American, I would have thought Norway would have a much more lenient form of debt relief based on everything I hear about Scandinavia from our local press. But what you're describing seems incredibly harsh. I wonder if this is why Norwegians tend to be more financially responsible. Only being able to declare bankruptcy once certainly would make people learn their lesson? Is that true? Does it work in practice?

Re: Danes Get 20-Year 0% Mortgages

#196

Post by tathougies »

BunsanSpace wrote: post #160
jandrese wrote: post #103

Earlier quoted context omitted.

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…

In the USA, first-time homebuyers can put 3.5% down with an FHA loan, but they have to pay insurance until they reach 20% equity.

Re: Danes Get 20-Year 0% Mortgages

#197

Post by namdnay »

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…

1/3 of your income OK, but why 5%? Are these variable rate mortgages?!

Re: Danes Get 20-Year 0% Mortgages

#198

Post by matwood »

frockington1 wrote: post #192
matwood wrote: post #161

Earlier quoted context omitted.

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.

If interest rates go up 6-7-8%, inflation would give most people an almost free house. Rent it out instead of selling and you have income for life.

Eventually, but salaries tend to lag inflation. Also would depend how quickly rates went up.

Re: Danes Get 20-Year 0% Mortgages

#199

Post by gen220 »

wrzuteczka wrote: post #145
mywittyname wrote: post #125

Earlier quoted context omitted.

Lenders make money on the currency exchange. This doesn't make sense for Americans because they use a single currency for everything, but in Europe, there is a benefit to having a revenue stream in a desirable currency which is appreciating relative to the Euro. To the buyer, the loan looks like 0% because the buyer pays back the loan in Franks or whatever. The bank, meanwhile, gave out a loan of X Euros, and is rece…

Where is that Y coming from? The rates of say EUR and CHF diverging?

Yes. If CHF outperforms EUR, and the mortgage payments are in CHF, a bank that has most expenses in EUR is making a profit.

You can hedge against the performance of CHF by keeping proportional revenue streams of EUR.

Re: Danes Get 20-Year 0% Mortgages

#200

Post by csharptwdec19 »

LatteLazy wrote: post #189
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…

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.

At least in the US, it's not quite like that. There typically -are- penalties for certain things (i.e. if a loan goes into default or gets paid off via a refinance within X months) as well as regulatory rules and the ever-present GSEs, Fannie and Freddie.

As long as the loan is 'conforming' (which the majority of loans on the up-and-up are) then Fannie or Freddie will guarantee it. Conforming loans must meet a number of criteria (Debt to income, income versus home value, etc.) to have a level of trust that the borrower will repay.

Edit: And yes, if you get caught selling a non-conforming loan to Fannie/Freddie (i.e. underwriting discrepancies) you can get fined and forced to buy back the loan. In fact sometimes they will go on fishing expeditions and companies will have to prove their innocence, almost like an IRS Audit.

There is also the 'servicing' aspect of a loan. Servicers basically collect payments for loans and forward them on to whomever backs the Mortgage. For Fannie/Freddie loans, what this means in case of a default is that the servicer will have to 'front' the money; this is what the housing industry was worried about at the start of COVID: before the guideline changes related to the virus, there were concerns about liquidity in that 'gap' between forbearance and (potential) forclosure.

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