5 ms·

For what it's worth I live in Denmark, working a private sector full time (37/week, usually less) job with a nice salary - though nothing out of the ordinary fo

by Fredej 6y ago

For what it's worth I live in Denmark, working a private sector full time (37/week, usually less) job with a nice salary - though nothing out of the ordinary for my education and experience. Came from a middle class family: My mom is a nurse and my father is an engineer. No life-changing inheritance from grandparents (~$10.000). My wife stays at home with our 2 year old daughter. We own an apartment in Copenhagen that we bought some 5 years ago, though we're obviously still paying a mortgage on it (0% loans definitely made that easier!). We're paying it down aggressively, though still have quite a bit of cash left to invest. From my experience it's about priorities. We rarely go out to dinner and don't own a car - hopefully never will. Rarely buy new clothes. While it might not be the norm, it's not something that's completely unheard of. One major factor though is probably student loans. When my wife and I left the university we both had savings of roughly $15.000. A year later, we bought the apartment. That would have been impossible if we had debt we needed to overcome first. If your friends moved here with significant debt, they're definitely playing catch-up compared to their peers.

joncrane 6y ago
It sounds like you are in a great situation, by why would you aggressively pay down a 0% interest loan?
- ChuckNorris89 6y ago
  Nobody likes to be in debt, the sooner you can get rid of it, the better.
  - ebawho 6y ago
    Is it though? if you have a 0% loan wouldn't it make more sense to pay as little as possible to the loan, and the surplus you save invest in something that gives you a return on your money?
    - neutronicus 6y ago
      Depends if it's fixed-rate
  - hkai 6y ago
    Hmm. But if you were investing that money even in some sort of risk free investment like time deposit, you'd be earning free money.
    - limomium 6y ago
      There is no such thing as risk free investment.
      - rytill 6y ago
        Including cash.
      - IkmoIkmo 6y ago
        There definitely are investments that have a better risk/reward ratio than carrying a 0% interest debt on a mortgage. e.g. savings accounts with 1% interest in the EU which are government insured up to 100k. Plus mortgage debt tends to have fiscal benefits in most countries, too. That's a better idea than paying off a 0% mortgage. Especially past a certain point where there's plenty of equity in the home. There's generally virtually no financial reason to pay off a 0% debt apart from some edge cases here and there. People do it for peace of mind, which is of course fine, but it only works because of financial illiteracy as it's not the most financially optimal decision to make. (even not the least risky).
        prewett 6y ago
        The problem with "financially optimal" strategies is that tend to ignore the fact that income can be lumpy. If everything is steady-state then it's "optimal" (as in better returns) to run highly leveraged. The problem is that life for individuals is not steady-state: you might lose your job, the economy might crater, the currency might get devalued, the property/stock market crash, etc. A 0% loan on a residence can be quite a problem if your income is 0 for some reason. Unlike a CEO who still gets his golden parachute if his highly leveraged, "financially optimal" company encounters "unforseeable" "turbulence" and ends up bankrupt, a bankruptcy in Me Myself and I, Inc. could be disastrous. Like, family on the streets disastrous. Individuals opting for peace of mind are minimizing downside risk, not maximizing "upside potential". Financiers can afford to take risks that end up with them blowing up, but when it's your life that blows up if some problem comes, minimizing the downside is a pretty maximizing strategy. The fact is, we know there we be periods of difficulty, we just don't know what the specific difficulty will be in advance.
- Fredej 6y ago
  It's a little bit more complicated than I let on. Loan is structured in 2 parts: Bankloan and mortgage. Mortgage is at roughly 0% and has a fixed payment for the duration - I cannot pay it differently than the initial agreement. The bankloan is at (I believe) 3%. I've roughly doubled my contributions to this loan, making it roughly equal to the amount I'm investing each month. I'm missing ~$10.000 on it now, so I think i'll just pay it down and have that out of the way. Being ahead also means that I'll have a way easier time if I ever need to buy something big one month - I can just choose not to pay that loan and not invest this month and I'll have plenty of money to spend. It's nice having some free cash flow :)
RikNieu 6y ago
0% loan? I can't even comprehend that living in South Africa
- Fredej 6y ago
  What's the loan situation down there? :-)
  - RikNieu 6y ago
    Well, currently the repo rate is extremely low historically, so you could get a mortgage at between 8-10%, if you have good credit history.
Wohlf 6y ago
How did you get 0% loans? That is an incredible privilege, and reinforces what the previous poster says imo.
- Fredej 6y ago
  Pretty standard rate in Denmark these days. Everyone can get it. Fixed rate 30 year loan is at 0.5%. Variable rate loans (what I have) is at -0.63%. I just rounded it to 0%.

by Fredej 6y ago

joncrane 6y ago

It sounds like you are in a great situation, by why would you aggressively pay down a 0% interest loan?

ChuckNorris89 6y ago
Nobody likes to be in debt, the sooner you can get rid of it, the better.
- ebawho 6y ago
  Is it though? if you have a 0% loan wouldn't it make more sense to pay as little as possible to the loan, and the surplus you save invest in something that gives you a return on your money?
  - neutronicus 6y ago
    Depends if it's fixed-rate
- hkai 6y ago
  Hmm. But if you were investing that money even in some sort of risk free investment like time deposit, you'd be earning free money.
  - limomium 6y ago
    There is no such thing as risk free investment.
    - rytill 6y ago
      Including cash.
    - IkmoIkmo 6y ago
      There definitely are investments that have a better risk/reward ratio than carrying a 0% interest debt on a mortgage. e.g. savings accounts with 1% interest in the EU which are government insured up to 100k. Plus mortgage debt tends to have fiscal benefits in most countries, too. That's a better idea than paying off a 0% mortgage. Especially past a certain point where there's plenty of equity in the home. There's generally virtually no financial reason to pay off a 0% debt apart from some edge cases here and there. People do it for peace of mind, which is of course fine, but it only works because of financial illiteracy as it's not the most financially optimal decision to make. (even not the least risky).
      - prewett 6y ago
        The problem with "financially optimal" strategies is that tend to ignore the fact that income can be lumpy. If everything is steady-state then it's "optimal" (as in better returns) to run highly leveraged. The problem is that life for individuals is not steady-state: you might lose your job, the economy might crater, the currency might get devalued, the property/stock market crash, etc. A 0% loan on a residence can be quite a problem if your income is 0 for some reason. Unlike a CEO who still gets his golden parachute if his highly leveraged, "financially optimal" company encounters "unforseeable" "turbulence" and ends up bankrupt, a bankruptcy in Me Myself and I, Inc. could be disastrous. Like, family on the streets disastrous. Individuals opting for peace of mind are minimizing downside risk, not maximizing "upside potential". Financiers can afford to take risks that end up with them blowing up, but when it's your life that blows up if some problem comes, minimizing the downside is a pretty maximizing strategy. The fact is, we know there we be periods of difficulty, we just don't know what the specific difficulty will be in advance.
Fredej 6y ago
It's a little bit more complicated than I let on. Loan is structured in 2 parts: Bankloan and mortgage. Mortgage is at roughly 0% and has a fixed payment for the duration - I cannot pay it differently than the initial agreement. The bankloan is at (I believe) 3%. I've roughly doubled my contributions to this loan, making it roughly equal to the amount I'm investing each month. I'm missing ~$10.000 on it now, so I think i'll just pay it down and have that out of the way. Being ahead also means that I'll have a way easier time if I ever need to buy something big one month - I can just choose not to pay that loan and not invest this month and I'll have plenty of money to spend. It's nice having some free cash flow :)

RikNieu 6y ago

0% loan? I can't even comprehend that living in South Africa

Fredej 6y ago
What's the loan situation down there? :-)
- RikNieu 6y ago
  Well, currently the repo rate is extremely low historically, so you could get a mortgage at between 8-10%, if you have good credit history.

Wohlf 6y ago

How did you get 0% loans? That is an incredible privilege, and reinforces what the previous poster says imo.

Fredej 6y ago
Pretty standard rate in Denmark these days. Everyone can get it. Fixed rate 30 year loan is at 0.5%. Variable rate loans (what I have) is at -0.63%. I just rounded it to 0%.