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

Re: Danes Get 20-Year 0% Mortgages

#321

Post by saberdancer » Wed, Jan 06, 2021, 12:49 PM UTC

anthuswilliams wrote: post #290

saberdancer wrote: post #165

Earlier quoted context omitted.

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.

Ah so the problem is that the supply of houses is very limited and prices are dictated by amount average house buyer for specific house can afford. It makes sense.

This is another proof why government shouldn't intervene into the market by offering loans or subsidies. Usually what they end up doing is completely opposite of the intention. Instead of subsidizing young buyers to buy homes for less cost, they end up subsidizing the owners of the houses.

Re: Danes Get 20-Year 0% Mortgages

#322

Post by jacobion » Wed, Jan 06, 2021, 1:02 PM UTC

fogihujy wrote: post #313

jseliger wrote: post #162

Earlier quoted context omitted.

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.

Alas, that won't work in Denmark. Any politician threatening to do something that would result in housing prices going down would be voted out of office by angry homeowners and Copenhagian landlords.

So maybe the problem is a broken political system which serves the interests of only one group of people, rather than high or low interest rates?

Re: Danes Get 20-Year 0% Mortgages

#323

Post by KSteffensen » Wed, Jan 06, 2021, 3:14 PM UTC

saberdancer wrote: post #159

fifticon wrote: post #97

Dane here. A piece is missing. Interest rates may be 0%, but there is also an annual bank fee on the loans. As the interest rates have gone down, these fees have risen, and I believe the banks increasingly make their money on those. It's still good news for borrower, since the fees don't accrue interest.

You probably have a term "Effective interest rate" which takes into account various fees and interest rate. It was designed to counter this type of practices by banks where they would offer lower interest rate but higher fees which were less visible to the consumer.

The interest rate is locked for the duration of the loan. The fees can vary according to how much money the bank feels like making this year.

Since there are quite large expenses associated with refinancing the mortgage most people put up with this.

Re: Danes Get 20-Year 0% Mortgages

#324

Post by KSteffensen » Wed, Jan 06, 2021, 3:24 PM UTC

xorcist wrote: post #120

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.…

So how much is the effective rate, typically?

The 'bidragssats' on my mortgage is currently at 0.7160%. This is a 15 year mortgage at 1% interest so effect rate is 1.71%.

If I was to refinance to a 30 year mortgage with the same bank/mortgage lender this quarter I would get a 0.5% mortgage with 'bidragssats' at 0.6812% so around 1.18% effective rate. This would also increase my principal by ~30000 DKK or around $5000.

Re: Danes Get 20-Year 0% Mortgages

#325

Post by eloff » Wed, Jan 06, 2021, 4:38 PM UTC

im3w1l wrote: post #307

eloff wrote: post #300

Earlier quoted context omitted.

That doesn't make logical sense to me. The back would still lose the principal if you defaulted right? Doesn't matter the interest rate.

The customer can't default if there is no interest, so just let the debt remain on the books forever. Well, I suppose you could take a loss if your customer dies, and the estate is insolvent.

If you're not making the monthly payments then that's still a default. I don't see how the interest changes anything.

I guess you could argue if the bank is not paying interest on that money, then they won't lose anything if the client is in default. I think there's probably still opportunity costs to the bank in that case - they could be loaning that money to a client that pays additional fees and makes the payments on time. But I imagine they would still foreclose and sell the asset to recover the principal in that case. Which might turn a profit for them.

Re: Danes Get 20-Year 0% Mortgages

#326

Post by SilasX » Wed, Jan 06, 2021, 5:11 PM UTC

DavidPeiffer wrote: post #240

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…

>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. I stopped into a car dealer to look at a vehicle a couple years ago. I liked how it drove, could pay cash, but wasn't opposed to taking out a loan if I could get a better price overall (sometimes possible with fees banks pay to used dealers for getting a loan originated). In my experie…

I was able to avoid this by buying from Carmax, where they really didn’t seem to care that I wanted to pay cash. They offered financing but didn’t push after I asked about the interest rate and declined. They also took a personal check (rather than requiring a cashier’s).

Re: Danes Get 20-Year 0% Mortgages

#327

Post by apta_ » Wed, Jan 06, 2021, 5:50 PM UTC

sifar wrote: post #304

ganeshkrishnan wrote: post #296

Earlier quoted context omitted.

>we would immediately rule out things like stock shorting, put and call options, margin and leverage trading, mortgages, interest bearing loans, selling debt for debt, and so on. These are the very foundations on which modern society is built and which drives the entire humanity forward. Sure, some people have managed to race ahead but on a whole we, as humans, have progressed from clubbing each other for food to arg…

That is a sweeping (and incorrect) generalization. Except the credit part, all the other things are optional. And even for credit, I am not sure interest is needed. That leads to the world devouring growth that we have. Just because we inherited a world where these things exist, the tendency to attribute them all to these things is not wise. I don't know what to call this fallacy.

> And even for credit, I am not sure interest is needed. That leads to the world devouring growth that we have.

Exactly. It's not needed. It causes a growth at all cost situation we see today (and one cost is debt slavery for a large portion of the population, increasing the wealth gap).

Re: Danes Get 20-Year 0% Mortgages

#328

Post by SilasX » Wed, Jan 06, 2021, 11:17 PM UTC

DavidPeiffer wrote: post #272

ryandrake wrote: post #257

Earlier quoted context omitted.

Exact same experience here. The salesman (and his manager, lol) just couldn't grok that I don't care a shred about what monthly payment they can math their way into. I'm looking at the total price of the car. It was like we were speaking totally different languages. Even after I tried to explain it with "Let's assume I'm going to pay cash..." they kept trying to steer me into their finance department. Obviously they…

A family member bought a very nice, decked out, brand new truck. He could pay cash, no issue. They gave him many thousands of dollars of discounts for financing it if he promised to keep the loan for 3 payments (or their fee from the bank would get clawed back). He held up his end of the deal, paying 18% interest on a massive truck loan for 3 months. The sad thing is many people would do the same thing without the ab…

I have a friend on FB who said he did the same thing, minus the verbal agreement, and made sure the loan didn't have a pre-payment penalty. He then paid it immediately, which I assume led to a strong talking-to for the employee that authorized that sale.

Re: Danes Get 20-Year 0% Mortgages

#329

Post by fogihujy » Thu, Jan 07, 2021, 7:29 AM UTC

jacobion wrote: post #322

fogihujy wrote: post #313

Earlier quoted context omitted.

Alas, that won't work in Denmark. Any politician threatening to do something that would result in housing prices going down would be voted out of office by angry homeowners and Copenhagian landlords.

So maybe the problem is a broken political system which serves the interests of only one group of people, rather than high or low interest rates?

Well, there's always that, but I've always figured it's about taxes and government spending. There's a very large amount of over-valued houses in and around the larger cities in Denmark. If the property value goes down, so does the property taxes, which means less income for the local authorities.

There are cheap houses available outside those areas, but getting a loan for them can be tricky since their value is too low and there's no money to be had from lending the money.

Furthermore, most people have their homes as security (not sure if it's the right word in English) for their loans. If the property value drops then many will be forced out of their homes. Also a lot of landlords and real-estate agents, will be out of a job, but that's probably a smaller issue.

Re: Danes Get 20-Year 0% Mortgages

#330

Post by beerandt » Thu, Jan 07, 2021, 2:04 PM UTC

foobarian wrote: post #113

beerandt wrote: post #77

Earlier quoted context omitted.

In the US, this is basically why APR =/= APY. Where APR is the effective rate including fees.

There is definitely a difference between APR and the nominal interest rate of a loan. APY is the same as APR if the compounding happens once a year.

Not if there are fees or points charged by the bank for the loan. They must be included in calculating apr.