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Danes Get 20-Year 0% Mortgages

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Re: Danes Get 20-Year 0% Mortgages

#281

Post by marvin »

adventured wrote: post #154
marvin wrote: post #138

Earlier quoted context omitted.

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 entir…

Fascinating, thanks for the info. In Norway, fixed-rate mortgage agreements are always made with a clause mandating settlement of the interest difference, in the case of refinancing or early repayment.

The customer therefore has no leverage over the lender by threatening to take the loan elsewhere. They'd have to pay all of the remaining interest if they wanted to settle the loan, or at best settle the interest difference if moving the loan to a lender with a different interest rate. Assuming both banks agreed to the exchange.

Of course, if interest rates increase, such settlement could also favor the borrower. But that hasn't been the case in a long time.

Most mortgages here are floating-rate.

Re: Danes Get 20-Year 0% Mortgages

#282

Post by kev009 »

znpy wrote: post #249
adewinter wrote: post #193

Earlier quoted context omitted.

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 "worryi…

> 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. I haven't owned a car and i'm almost 30, and have always enjoyed public transport so far. When I'll decide to buy a car, I'll just f-ing pay it in full and be done with it.

Car loans are 0% for anyone with good credit right now. We live in a managed economy now sadly, so you are actually throwing away money by paying outright instead of taking on interest-free debt and doing almost anything else with the theoretical reserve-principle; even sticking it in a checking account is going to be a net gain.

Re: Danes Get 20-Year 0% Mortgages

#283

Post by nicbou »

xyzzy123 wrote: post #261
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”

When you're in a bidding war with people who reason this way, your only option is to do the same or stop playing the game. Where "stop playing the game" means get out of hot housing markets :/

You're still not out of the game, since those insane prices are reflected in the rent prices.

Re: Danes Get 20-Year 0% Mortgages

#284

Post by myrandomcomment »

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…

Depends on the size of the loan, but what you say is true for most. In my personal case I have a “jumbo” loan which is not covered by US government Freddie Mac rules so the bank has to hold the loan on its books. This is pretty common in the Bay Area due to the stupid level cost of housing. In my area the median housing price is $1.785M. From a US tax perspective it made sense for me to take out the largest loan, $1M, because of the interest tax deductions. That, charity and capital loss is pretty much the only tax deductions I have. Not complaining as I understand how lucky I am.

Re: Danes Get 20-Year 0% Mortgages

#285

Post by kasey_junk »

apta_ wrote: post #250
kasey_junk wrote: post #241

Earlier quoted context omitted.

What about futures contracts?

In Islam, there exists a notion of a Salam sale (بيع السلم), or (advance sale). These are sales contracts in which the price is paid for goods to be delivered at a later time. > The Prophet (ﷺ) came to Medina and the people used to pay in advance the price of dates to be delivered within two or three years. He said (to them), "Whoever pays in advance the price of a thing to be delivered later should pay it for a spec…

Yes that sounds like a classic futures contract to me. I'd never heard that usury rules applied to financial contracts before.

Its interesting because advance sales are a positional bet similar to a short sell. Are you allowed to sell the Salam sale contract to a third party? Apologies for all the questions this is fascinating.

Re: Danes Get 20-Year 0% Mortgages

#286

Post by wcoenen »

dcolkitt wrote: post #110
tveyben wrote: post #25

But one forgets that even though the interest rate is 0% the COST of the loan is !=0, we still have to pay a "bidragsssats" which is an "administrative fee" to have the loan The interesting part is that that this rate can be changed over time to whatever the lone-shark wants it to be, thus - as always - you need to look at the TCO. ÅOP as it is in danish: "Årlig Omkostning i Procent" - aka the Yearly cost in percent.…

I'm curious why this hasn't been competed away. Short-term rates in Denmark are -0.6%. Couldn't banks just borrow short, write mortgages at 0% and pocket 60 basis points? It's a little screwy, because you're getting paid the lenders instead of the borrowers. But it's still fundamentally no different than a bank that borrows at 2.5% and writes mortgages at 3% APR.

There are two types of rates that are negative: the central bank deposit rate, and the government bond rate. Neither means that commercial banks can borrow at negative rates.

Re: Danes Get 20-Year 0% Mortgages

#287

Post by patrickthebold »

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”

Assume a 30 year fixed mortgage. Say the buyer pays $1 million total, the interest rate determines the purchase price. But why do you care? Either the seller or the lender will get the money.

Re: Danes Get 20-Year 0% Mortgages

#288

Post by coliveira »

tomatocracy wrote: post #170
coliveira wrote: post #146

Earlier quoted context omitted.

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…

But modern banks don't stay with a mortgage loan for long periods of time. Thanks to the "miracle" of derivatives, mortgage loans are repackaged and sold to other institutions, so the risk they carry is very small compared to the old times.

Re: Danes Get 20-Year 0% Mortgages

#289

Post by betaby »

JacobDotVI wrote: post #51
ghshephard wrote: post #9

Earlier quoted context omitted.

What's the argument for negative interest rates having any impact on house prices? I would think it would be mostly linear compared to 2%, 1%, 0%, -1%, etc... For example - if I have a 20 year mortgage on a $240,000 house @ 0%, I have to pay $1,000/month. If the interest rate is -1% then I have to pay ~$900/month. I don't know if that extra $100/month really moves the market on home prices that much.

I think you need to look at it from monthly -> house price and not the other way around. If your budget / purchasing power is $1000 /m then your house budget is roughly as follows: $190,000 @ 5% interest $210,000 @ 4% interest $235,000 @ 3% interest $275,000 @ 2% interest $310,000 @ 1% interest [Note - not exact numbers; 30yr mortgage; mortgage calculator.org via guessing numbers until the monthly was close enough to…

That's _the_same_ house costs 190k if interest is 5% and 310k if interest is 1%. Supply is not flexible at all, especially in the desirable place. Basically hosing prices determined by the maximal mortgage amount, not the house property.

Re: Danes Get 20-Year 0% Mortgages

#290

Post by anthuswilliams »

saberdancer wrote: post #165
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.

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 expe…

In practice, since people can afford to pay $1738 USD per month, they bid up the price of the same house to =FV(0.03/12;10*12;-1738) or 243 000 USD.
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