23 ms·

Danes Get 20-Year 0% Mortgages

215 points by harambae 6y ago

tempsy 6y ago
only a matter of time when we start seeing negative rates on mortgages.
- mmastrac 6y ago
  Or on savings accounts
  - bzb6 6y ago
    Don’t we have that already? Mandated by the ECB
  - tveyben 6y ago
    We already have this at least here in Denmark. Some banks have a cap (EG 50K DKr or 250K Dkr). https://blog.nord.investments/hvordan-undgar-du-de-negative-renter-i-banken/ https://blog.nord.investments/hvordan-undgar-du-de-negative-...
- api 6y ago
  If that happens house prices will go apeshit.
  - asdfasgasdgasdg 6y ago
    There's not a significant difference between a 0% and a -0.125% mortgage. If one doesn't cause weird changes to the housing market I don't expect the other to.
    - vageli 6y ago
      There's not a significant difference between 0°C and 1°C either, but drastic changes occur at one and not the other.
      - asdfasgasdgasdg 6y ago
        0C was the number given to that temperature specifically because that's where drastic changes occur in water. With most materials, there is no significant difference between 0C, -1C, and 1C. On the other hand, 0% has no known special relationship with the housing market, so there's not really a good reason to expect substantially different behavior at that value compared to -.125% or +.125%.
  - ghshephard 6y ago
    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.
    - wrsh07 6y ago
      I think at that point everyone should be incentivized to hold a mortgage At the very least that increases demand for housing dramatically
    - bluedevil2k 6y ago
      People would be incentivized to buy the absolute most expensive home they qualify for, which isn’t always a good thing. Dove sorry is the key to investments.
      - war1025 6y ago
        > Dove sorry is the key to investments. What does this mean? I am at a loss.
        nostrademons 6y ago
        I assume it's an autocorrect from "diversity".
        api 6y ago
        Mobile is the foot rub (autocorrect of "mobile is the future" I saw once).
      - Robin_Message 6y ago
        I'm guessing "dove sorry" is diversity, but who knows!
    - 6y ago
- arnon 6y ago
  We already had that last year here in Denmark :) https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-year-mortgages-with-negative-interest-rates.html https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-y...
- lumost 6y ago
  At the end of the day isn't this just a regressive tax in favor of land owners? How many compounding cycles would it take before no one cares about a wipe out in land valuation as it's primarily owned by the extremely wealthy.
  - onlyrealcuzzo 6y ago
    In the US, >67% people own their homes: https://fred.stlouisfed.org/series/RHORUSQ156N https://fred.stlouisfed.org/series/RHORUSQ156N Homeowners view this as a zero-sum game. If the 33% of non-homeowners are losing (and they definitely are), than the 67% of homeowners feel they must be winning (even though, arguably, the majority of them aren't).
    - lumost 6y ago
      As the price of homes rises, wouldn't you expect the 67% to shrink? fewer individuals would have the capital to afford a down payment, and some portion of the 67% will liquidate the equity for retirement and other activities.
      - onlyrealcuzzo 6y ago
        Historically, there hasn't been a lot of correlation here. I agree with your logic - it seemingly would make sense.
- useerup 6y ago
  I have -0.28% on a mortgage which will be refinanced every 5 year. The lenders actually pay me to store their capital. Weird times. In actuality, though, I also pay a 0.5% "contribution" fee which covers mortgage company administration and collective risk. So the effective rate is around 0.22%. For the 20y bonds the 0% interest is also just the actual bond rate. The administration fee will have to be added. The "contribution" fee rate depends on how much of the home value has been mortgaged. Below 60% it is typically around 0.5% because of the relatively low risk (you can probably always auction off the house at get at least 60% even in bad times). When mortgaged from 60 to 80% of the home value the fee is higher.
- Hamuko 6y ago
  The interest rate on my mortgage is MAX(12 months Euribor rate, 0%) + 0.5%. Apparently some banks didn't realise to do the MAX() back in the day because surely the Euribor rates are not going to be negative, so there were some instances of negative mortgage rates here.
dpoochieni 6y ago
Long BTC...
- trident1000 6y ago
  Downvoted but correct. This is a symptom of central bank and fiat absurdity. Trust is being broken and people are looking to a new form of trust.
mensetmanusman 6y ago
Negative Mortgage rates would be a funny way to implement UBI. House prices go to infinity for the lifetime of the buyer.
- danhak 6y ago
  More like Feudalism 2.0. the "U" in UBI is important.
- seiferteric 6y ago
  That (sadly) sounds exactly like the sort of thing that could actually fly in America with regards to UBI.
- andromeduck 6y ago
  How to kill social mobility 101.
- imtringued 6y ago
  You already live that reality if you own stocks or real estate.
andrewmcwatters 6y ago
Housing prices internationally are already high, it's going to be an interesting next 15-30 years.
DevKoala 6y ago
I just refinanced at 2.0% for 15 years in California and I was feeling like a champ for timing the bottom.
- justinzollars 6y ago
  What's the point of a 15 year when the 10 year nominal rate - inflation rate is less than the gains you will make in income?
  - 1stcity3rdcoast 6y ago
    Opportunity cost of the higher monthly payment surely factors in?
    - mywittyname 6y ago
      Yeah, I got a 15 year loan to save about 25% on my interest payments (3% vs 4%). Looking back, that was totally stupid because had I got a 30 year loan, and invested the difference (which I absolutely would have), I would earned a substantially greater return from the resulting stock boom.
      - 1stcity3rdcoast 6y ago
        Exactly and makes total sense. Plus, not everyone has infinite income, so people are "rate limited" into choosing the 30 over a 15 or 10.
    - ahepp 6y ago
      Isn't that another advantage of 30 year?
      - 1stcity3rdcoast 6y ago
        Yes, especially if you have an alternative place to park the money that earns N+1, where N is your interest. Anything above that is marginal gravy.
ageitgey 6y ago
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 a big down payment can actually buy a house. 3. Banks turn away borrowers because they end up with too many loans on their books and no real incentive to get more. I would be interested to hear from people with more direct experience on how this plays out.
- nugget 6y ago
  Another potential consequence is that if the price of your house falls more than the down payment you invested, you may be incentivized to simply walk away. The price could fall for any number of reasons: a market crash and country-wide depression widely impacting many people, or an individual owner who simply did no maintenance/upkeep over a period of years and the property is in disrepair. The disrepair scenario is common among elderly homeowners in the US.
  - CogitoCogito 6y ago
    Can Danes just walk away from their loans simply returning the home? I believe that's true in the US, but I don't think that's universal.
    - lotsofpulp 6y ago
      Even in the US, only 12 states are “non recourse”. https://www.financialsamurai.com/non-recourse-states-walk-away-from-mortgage/ https://www.financialsamurai.com/non-recourse-states-walk-aw...
    - danhak 6y ago
      It's not true in all of the US (recourse vs. non-recourse). In all but 12 states, a lender can come after your other assets if the value of your collateral does not satisfy your debt.
GreeniFi 6y ago
What is the incentive for a bank to lend at 0%? Surely it’s more profitable to do nothing?
- danhak 6y ago
  Hedge against negative rates?
- cesis 6y ago
  Central Banks can enforce negative interest rates. https://en.m.wikipedia.org/wiki/Negative_interest_on_excess_reserves https://en.m.wikipedia.org/wiki/Negative_interest_on_excess_...
  - GreeniFi 6y ago
    Sheeesh. Bad news for entrepreneurship. As due to mortgage lending rules, it’s very difficult to get a loan as a business owner rather than an employee with steady, bankable, salary
    - imtringued 6y ago
      It's also bad news for consumers because they cannot finance consumption with mortgages. You're never going to see consumer inflation if you're giving money to everyone except the consumers.
    - legulere 6y ago
      Corporate bonds are also at a record low, even so much that there’s talk of an increasing rate of zombie companies that just stay alive because of loaned money and will collapse as soon as interest rates will go up again.
    - apta_ 6y ago
      It's not bad news. Because interest is parasitic (it's prohibited in Islam, Judaism, and Christianity), there are other (fair) ways to become an entrepreneur. Pitch your idea to an investor (or group of investors), and have them put money into your company. If it succeeds, everyone profits, if it doesn't, you're not left with crippling usurious debt.
disown 6y ago
Do Danes get tax deductions on mortgage interest? One of the best tax deductions we get is the one on mortgage interest. Also this isn't really that great since lower interest means higher home prices. I'd rather have high interest and low home prices if I were a buyer and try to pay if off ASAP or refinance to lower interest when the rate drops. Buy when interest is high and home prices low and sell when interest is low and home prices is high.
- andechs 6y ago
  The tax deduction on mortgage interest is one of the most regressive pieces of tax policy. Those with more expensive housing benefit more from the credit. Non-homeowners do not benefit at all, and renters tend to be poorer than homeowners.
  - sokoloff 6y ago
    Renters are living in housing which is itself eligible for business loan deductions. If you believe that landlords use the cost of holding real estate as an input that shapes the supply side of the supply-demand balance in the broad rental market (as I do), then it seems that renters do indirectly benefit from the deductibility of the loans on the buildings in which they live. The mortgage interest deduction serves to put the purchasers of owner-occupied real estate onto a more equal footing with commercially-rented real estate. That seems like a valid public policy purpose, even though the mortgage interested deduction became substantially less valuable with TCJA-2017.
    - matsemann 6y ago
      But it keeps renters renters. I'd rather forego my tax deduction for owning my apartment and bake it into the normal tax. I feel it's unfair a friend can pay the same amount as me each month, but instead of paying down a loan he loses everything to a landlord. And in addition I also get to deduct the ~rents~ interest.
      - sokoloff 6y ago
tveyben 6y ago
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...
- SilasX 6y ago
  Yeah, that's what I figured. Which I why I was pleasantly surprised to learn (at least according to an HNer in the know) that, in the UK at least, rates must be expressed in a way that accounts for all fees -- so something like this couldn't be called 0%. https://news.ycombinator.com/item?id=11082905 https://news.ycombinator.com/item?id=11082905
  - ashtonkem 6y ago
    Honesty in advertising laws are really a wonderful thing.
- beerandt 6y ago
  In the US, this is basically why APR =/= APY. Where APR is the effective rate including fees.
  - pkaye 6y ago
    I though APY is just APR with interest compounding.
  - foobarian 6y ago
    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.
    - beerandt 6y ago
      Not if there are fees or points charged by the bank for the loan. They must be included in calculating apr.
mywittyname 6y ago
> Back in 2012, policy makers drove their main rate below zero to defend the krone’s peg to the euro. Since then, Danish homeowners have enjoyed continuous slides in borrowing costs. This is like a Canadian getting a 3.0% loan in USD to buy a house, then having the Canadian government fix the Canadian dollar such that it appreciate 3.0% pa against the USD. It's effectively a 0% loan, but due to obscure technicalities. It seems, the lender still earns interest, it's just that the interest is covered by the variance in exchange rates between currencies. So your DKK1000 mortgage payment is worth €1030 after the first year, €1091 the next, etc.
deleted 6y ago
[deleted]
sleepysysadmin 6y ago
The actual interest rate is -0.75%. If they are offering 0% mortgages, the bank is taking 0.75%. From your point of view as the buyer. You basically are being given an amount of free money to on the books take an amount of debt. The thing about negative rates, it's effectively society is saying 'do anything so long as it's not risky.' even if it doesnt make sense. It makes sense, tons of money is moving more conservative. Boomers are headed into retirement and need to move their money to safety. Except where are they investing it safely? In those bonds that are negative. They are losing money in their investment. There's also the reality that the boomers have not saved enough in their generation. Many of them are expecting underfunded social programs are going to keep them afloat. That's not going to happen. In many places those retired cant make ends meet and therefore you get silver crime. https://www.telegraph.co.uk/news/2017/11/20/poverty-ageing-japanese-population-fuelling-silver-crime-wave/ https://www.telegraph.co.uk/news/2017/11/20/poverty-ageing-j... So the boomers will raise the money to retire by inflating housing values and the younger generations buy this debt theoretically when they move into those bigger homes. That's not how it will work. It will inevitable result in exactly the same interest rates and inflation like the 70s and 80s during the WW1 boomers.
supernova87a 6y ago
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 parking or lending their money somewhere. This has gone to 0% (almost no profit) because no one can offer good returns on the money. Or the people receiving the money have so many choices that the lenders are forced to compete to 0%. All the VC money sloshing around for free is because there is no more favorable place for that money to find profit and the 1-in-10 (?) shot that startups have is still better odds than average other opportunities. Right now it seems there is too much money searching for returns. And that money is not somehow just going to disappear over time. To take the opposite hypothetical, if you consider the accumulated wealth of all countries now, and the relatively low growth of most of them, how could it be possible that all that money could find good investment return rates? Except for isolated pockets of growth, need for investment, where will we find broad returns anything greater than a few %? So, until something fundamental about the money supply changes, are we in for a long period of pretty much 0% returns? I would love to know some more sophisticated ways to understand the situation.
- andromeduck 6y ago
  Growth correlates best with productivity and productivity is a factor of capital effiency and manpower, and manpower increases with population.
- linuxftw 6y ago
  We are in uncharted economic waters, and we have been for about 12 years. Not only is there 0% (or lower!) interest rates, we also have QE (central banks buying government assets directly), we have central banks buying corporate debt now! This is creating market bubbles. Worthless tech stocks is one place. Housing prices have soared. Whatever might happen might happen quickly.
  - majormajor 6y ago
Redploy 6y ago
Contact Redploy4000@gmail.com if you're looking for a skilled, quick, reliable and confident ethical hacker or programmer.
- lostmsu 6y ago
  @dang
harel 6y ago
Before the financial crisis of 2008 you could get those in the UK. I had one just as the fan got hit by something back then. 25 years, 0%, no deposit. They were quite common. It was so good I didn't remortgage for 10 years until we sold and moved.
fifticon 6y ago
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.
- saberdancer 6y ago
  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.
  - KSteffensen 6y ago
    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.
- tsjq 6y ago
  That sounds like "Shariah compliance"
alkonaut 6y ago
When interest rates are as low as they have been now for a long while (sub 2% for homes), the interest rate portion isn’t the limiting factor for how much you can afford to borrow. Instead, to prevent prices going to infinity, there is usually some kind of laws in place for maximum length such as 30, 50 or 100 years (infinite I.e interest-only was common at least in Sweden when rates were higher), a minimum down payment such as 15%, a maximum size of the mortgage relative to the income etc. Sweden now has all of these (!) so for most buyers, whether the interest is 0.5 or 3.5 makes very little difference. Most buyers, especially first time buyers, will be capped by one of the other limits regardless. As it has been pointed out, this loan isn’t 0% since it’s not the effective interest rate including fees that is 0%.
- adventured 6y ago
  This effect has also resulted in the people of Denmark becoming the most indebted households on the planet [1], which is increasingly a common theme among such low rate borrowing nations. Norway and the Netherlands are two of the other most indebted household nations. So the real cost is far beyond the low interest monthly payments, it ends up becoming a society-level risk of economic debt suffocation as people load themselves with ever greater amounts of housing obligation, and it sets the stage for a hyper regressive society where housing is far too expensive and you have to bury yourself in debt to buy in. 0% mortgages are cheered, while the staggering monthly payments caused by the asset-inflationary nature of those 0% rates is ignored (resulting in eg Denmark becoming buried in household debt their incomes barely support). [1] https://i.imgur.com/m5E6Tvd.png https://i.imgur.com/m5E6Tvd.png
jschulenklopper 6y ago
In NL, some banks issued mortgages with interest percentages linked to Euribor interest rates (like +0.5% on 3-month Euribor rate). Once the Euribor dropped below -0.5%, the banks actually had to pay out the interest difference (if there weren’t other bank charges added)... Some people, but likely to be just hundreds of customers, not much more, actually have a mortgage (with ING and Rabobank) for which they receive money at this moment. The same mortgage product cannot be bought anymore...
vachi 6y ago
The key term here is Danes, not residents of Denmark, but individuals who are born or naturalized Danes, even many of the naturalized ones do not get the same rates. By default Danes get ~5% downpayment where none Danes get ~40%.... yay
- SebastianKumor 6y ago
  Not true, my friend(who is not a danish citizen) bought a flat in copenhagen and got 5% downpayment
- paozac 6y ago
  Indeed, if you're a foreigner the conditions are far worse: higher interest rate, higher downpayment e lower loan amount.
- jopsen 6y ago
  Well, given that the interest rates are negative, it's kind of hard to tell if 5% downpayment is better than 40% downpayment.. Afaik, the norm is 20% down, but the banks will loan you another 15% at a higher rate if you want that.
LatteLazy 6y ago
Here in the UK some people had mortgages that were "x% below base rate". When the 2008 crash happened, rares fell to 0 or 0.25% and they were paid by their lender for the privilege of having borrowed.
ur-whale 6y ago
Capitalism has gone full circle and come back the other side.
renewiltord 6y ago
Looked it up and prices are comparable to America with far lower median income. I think the US situation is better for most people.
volkerp 6y ago
Bought an apartment in Germany this year. My effective interest rate is 0.74% fixed 20 years with a downpayment of 40%. The bank guy said the bank will make no money on this loan. They do it anyway because they want the object in the portfolio. Inflation in the housing market has been tremendous in the last years in germany.
- 317070 6y ago
  > The bank guy said the bank will make no money on this loan. Ha, I believe that the guy told you that, I don't believe he is correct. :) The bank is not a non-profit and is totally making money on that mortgage. A considerable margin in fact, given how much effort goes into it.
barbarbar 6y ago
The article does not say anything about the price of the bonds. So it is kind of useless information. For example if it is 0.94 it may be worse than a 0.5 coupon bond with a higher price.

215 points by harambae 6y ago

tempsy 6y ago

only a matter of time when we start seeing negative rates on mortgages.

mmastrac 6y ago
Or on savings accounts
- bzb6 6y ago
  Don’t we have that already? Mandated by the ECB
- tveyben 6y ago
  We already have this at least here in Denmark. Some banks have a cap (EG 50K DKr or 250K Dkr). https://blog.nord.investments/hvordan-undgar-du-de-negative-renter-i-banken/ https://blog.nord.investments/hvordan-undgar-du-de-negative-...
api 6y ago
If that happens house prices will go apeshit.
- asdfasgasdgasdg 6y ago
  There's not a significant difference between a 0% and a -0.125% mortgage. If one doesn't cause weird changes to the housing market I don't expect the other to.
  - vageli 6y ago
    There's not a significant difference between 0°C and 1°C either, but drastic changes occur at one and not the other.
    - asdfasgasdgasdg 6y ago
      0C was the number given to that temperature specifically because that's where drastic changes occur in water. With most materials, there is no significant difference between 0C, -1C, and 1C. On the other hand, 0% has no known special relationship with the housing market, so there's not really a good reason to expect substantially different behavior at that value compared to -.125% or +.125%.
- ghshephard 6y ago
  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.
  - wrsh07 6y ago
    I think at that point everyone should be incentivized to hold a mortgage At the very least that increases demand for housing dramatically
  - bluedevil2k 6y ago
    People would be incentivized to buy the absolute most expensive home they qualify for, which isn’t always a good thing. Dove sorry is the key to investments.
    - war1025 6y ago
      > Dove sorry is the key to investments. What does this mean? I am at a loss.
      - nostrademons 6y ago
        I assume it's an autocorrect from "diversity".
        api 6y ago
        Mobile is the foot rub (autocorrect of "mobile is the future" I saw once).
    - Robin_Message 6y ago
      I'm guessing "dove sorry" is diversity, but who knows!
  - 6y ago
arnon 6y ago
We already had that last year here in Denmark :) https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-year-mortgages-with-negative-interest-rates.html https://www.cnbc.com/2019/08/12/danish-bank-is-offering-10-y...
lumost 6y ago
At the end of the day isn't this just a regressive tax in favor of land owners? How many compounding cycles would it take before no one cares about a wipe out in land valuation as it's primarily owned by the extremely wealthy.
- onlyrealcuzzo 6y ago
  In the US, >67% people own their homes: https://fred.stlouisfed.org/series/RHORUSQ156N https://fred.stlouisfed.org/series/RHORUSQ156N Homeowners view this as a zero-sum game. If the 33% of non-homeowners are losing (and they definitely are), than the 67% of homeowners feel they must be winning (even though, arguably, the majority of them aren't).
  - lumost 6y ago
    As the price of homes rises, wouldn't you expect the 67% to shrink? fewer individuals would have the capital to afford a down payment, and some portion of the 67% will liquidate the equity for retirement and other activities.
    - onlyrealcuzzo 6y ago
      Historically, there hasn't been a lot of correlation here. I agree with your logic - it seemingly would make sense.
useerup 6y ago
I have -0.28% on a mortgage which will be refinanced every 5 year. The lenders actually pay me to store their capital. Weird times. In actuality, though, I also pay a 0.5% "contribution" fee which covers mortgage company administration and collective risk. So the effective rate is around 0.22%. For the 20y bonds the 0% interest is also just the actual bond rate. The administration fee will have to be added. The "contribution" fee rate depends on how much of the home value has been mortgaged. Below 60% it is typically around 0.5% because of the relatively low risk (you can probably always auction off the house at get at least 60% even in bad times). When mortgaged from 60 to 80% of the home value the fee is higher.
Hamuko 6y ago
The interest rate on my mortgage is MAX(12 months Euribor rate, 0%) + 0.5%. Apparently some banks didn't realise to do the MAX() back in the day because surely the Euribor rates are not going to be negative, so there were some instances of negative mortgage rates here.

dpoochieni 6y ago

Long BTC...

trident1000 6y ago
Downvoted but correct. This is a symptom of central bank and fiat absurdity. Trust is being broken and people are looking to a new form of trust.

mensetmanusman 6y ago

Negative Mortgage rates would be a funny way to implement UBI. House prices go to infinity for the lifetime of the buyer.

danhak 6y ago
More like Feudalism 2.0. the "U" in UBI is important.
seiferteric 6y ago
That (sadly) sounds exactly like the sort of thing that could actually fly in America with regards to UBI.
andromeduck 6y ago
How to kill social mobility 101.
imtringued 6y ago
You already live that reality if you own stocks or real estate.

andrewmcwatters 6y ago

Housing prices internationally are already high, it's going to be an interesting next 15-30 years.

DevKoala 6y ago

I just refinanced at 2.0% for 15 years in California and I was feeling like a champ for timing the bottom.

justinzollars 6y ago
What's the point of a 15 year when the 10 year nominal rate - inflation rate is less than the gains you will make in income?
- 1stcity3rdcoast 6y ago
  Opportunity cost of the higher monthly payment surely factors in?
  - mywittyname 6y ago
    Yeah, I got a 15 year loan to save about 25% on my interest payments (3% vs 4%). Looking back, that was totally stupid because had I got a 30 year loan, and invested the difference (which I absolutely would have), I would earned a substantially greater return from the resulting stock boom.
    - 1stcity3rdcoast 6y ago
      Exactly and makes total sense. Plus, not everyone has infinite income, so people are "rate limited" into choosing the 30 over a 15 or 10.
  - ahepp 6y ago
    Isn't that another advantage of 30 year?
    - 1stcity3rdcoast 6y ago
      Yes, especially if you have an alternative place to park the money that earns N+1, where N is your interest. Anything above that is marginal gravy.

ageitgey 6y ago

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 a big down payment can actually buy a house. 3. Banks turn away borrowers because they end up with too many loans on their books and no real incentive to get more. I would be interested to hear from people with more direct experience on how this plays out.

nugget 6y ago
Another potential consequence is that if the price of your house falls more than the down payment you invested, you may be incentivized to simply walk away. The price could fall for any number of reasons: a market crash and country-wide depression widely impacting many people, or an individual owner who simply did no maintenance/upkeep over a period of years and the property is in disrepair. The disrepair scenario is common among elderly homeowners in the US.
- CogitoCogito 6y ago
  Can Danes just walk away from their loans simply returning the home? I believe that's true in the US, but I don't think that's universal.
  - lotsofpulp 6y ago
    Even in the US, only 12 states are “non recourse”. https://www.financialsamurai.com/non-recourse-states-walk-away-from-mortgage/ https://www.financialsamurai.com/non-recourse-states-walk-aw...
  - danhak 6y ago
    It's not true in all of the US (recourse vs. non-recourse). In all but 12 states, a lender can come after your other assets if the value of your collateral does not satisfy your debt.

GreeniFi 6y ago

What is the incentive for a bank to lend at 0%? Surely it’s more profitable to do nothing?

danhak 6y ago
Hedge against negative rates?
cesis 6y ago
Central Banks can enforce negative interest rates. https://en.m.wikipedia.org/wiki/Negative_interest_on_excess_reserves https://en.m.wikipedia.org/wiki/Negative_interest_on_excess_...
- GreeniFi 6y ago
  Sheeesh. Bad news for entrepreneurship. As due to mortgage lending rules, it’s very difficult to get a loan as a business owner rather than an employee with steady, bankable, salary
  - imtringued 6y ago
    It's also bad news for consumers because they cannot finance consumption with mortgages. You're never going to see consumer inflation if you're giving money to everyone except the consumers.
  - legulere 6y ago
    Corporate bonds are also at a record low, even so much that there’s talk of an increasing rate of zombie companies that just stay alive because of loaned money and will collapse as soon as interest rates will go up again.
  - apta_ 6y ago
    It's not bad news. Because interest is parasitic (it's prohibited in Islam, Judaism, and Christianity), there are other (fair) ways to become an entrepreneur. Pitch your idea to an investor (or group of investors), and have them put money into your company. If it succeeds, everyone profits, if it doesn't, you're not left with crippling usurious debt.

disown 6y ago

Do Danes get tax deductions on mortgage interest? One of the best tax deductions we get is the one on mortgage interest. Also this isn't really that great since lower interest means higher home prices. I'd rather have high interest and low home prices if I were a buyer and try to pay if off ASAP or refinance to lower interest when the rate drops. Buy when interest is high and home prices low and sell when interest is low and home prices is high.

andechs 6y ago
The tax deduction on mortgage interest is one of the most regressive pieces of tax policy. Those with more expensive housing benefit more from the credit. Non-homeowners do not benefit at all, and renters tend to be poorer than homeowners.
- sokoloff 6y ago
  Renters are living in housing which is itself eligible for business loan deductions. If you believe that landlords use the cost of holding real estate as an input that shapes the supply side of the supply-demand balance in the broad rental market (as I do), then it seems that renters do indirectly benefit from the deductibility of the loans on the buildings in which they live. The mortgage interest deduction serves to put the purchasers of owner-occupied real estate onto a more equal footing with commercially-rented real estate. That seems like a valid public policy purpose, even though the mortgage interested deduction became substantially less valuable with TCJA-2017.
  - matsemann 6y ago
    But it keeps renters renters. I'd rather forego my tax deduction for owning my apartment and bake it into the normal tax. I feel it's unfair a friend can pay the same amount as me each month, but instead of paying down a loan he loses everything to a landlord. And in addition I also get to deduct the ~rents~ interest.
    - sokoloff 6y ago

tveyben 6y ago

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...

SilasX 6y ago
Yeah, that's what I figured. Which I why I was pleasantly surprised to learn (at least according to an HNer in the know) that, in the UK at least, rates must be expressed in a way that accounts for all fees -- so something like this couldn't be called 0%. https://news.ycombinator.com/item?id=11082905 https://news.ycombinator.com/item?id=11082905
- ashtonkem 6y ago
  Honesty in advertising laws are really a wonderful thing.
beerandt 6y ago
In the US, this is basically why APR =/= APY. Where APR is the effective rate including fees.
- pkaye 6y ago
  I though APY is just APR with interest compounding.
- foobarian 6y ago
  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.
  - beerandt 6y ago
    Not if there are fees or points charged by the bank for the loan. They must be included in calculating apr.

mywittyname 6y ago

> Back in 2012, policy makers drove their main rate below zero to defend the krone’s peg to the euro. Since then, Danish homeowners have enjoyed continuous slides in borrowing costs. This is like a Canadian getting a 3.0% loan in USD to buy a house, then having the Canadian government fix the Canadian dollar such that it appreciate 3.0% pa against the USD. It's effectively a 0% loan, but due to obscure technicalities. It seems, the lender still earns interest, it's just that the interest is covered by the variance in exchange rates between currencies. So your DKK1000 mortgage payment is worth €1030 after the first year, €1091 the next, etc.

deleted 6y ago

[deleted]

sleepysysadmin 6y ago

The actual interest rate is -0.75%. If they are offering 0% mortgages, the bank is taking 0.75%. From your point of view as the buyer. You basically are being given an amount of free money to on the books take an amount of debt. The thing about negative rates, it's effectively society is saying 'do anything so long as it's not risky.' even if it doesnt make sense. It makes sense, tons of money is moving more conservative. Boomers are headed into retirement and need to move their money to safety. Except where are they investing it safely? In those bonds that are negative. They are losing money in their investment. There's also the reality that the boomers have not saved enough in their generation. Many of them are expecting underfunded social programs are going to keep them afloat. That's not going to happen. In many places those retired cant make ends meet and therefore you get silver crime. https://www.telegraph.co.uk/news/2017/11/20/poverty-ageing-japanese-population-fuelling-silver-crime-wave/ https://www.telegraph.co.uk/news/2017/11/20/poverty-ageing-j... So the boomers will raise the money to retire by inflating housing values and the younger generations buy this debt theoretically when they move into those bigger homes. That's not how it will work. It will inevitable result in exactly the same interest rates and inflation like the 70s and 80s during the WW1 boomers.

supernova87a 6y ago

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 parking or lending their money somewhere. This has gone to 0% (almost no profit) because no one can offer good returns on the money. Or the people receiving the money have so many choices that the lenders are forced to compete to 0%. All the VC money sloshing around for free is because there is no more favorable place for that money to find profit and the 1-in-10 (?) shot that startups have is still better odds than average other opportunities. Right now it seems there is too much money searching for returns. And that money is not somehow just going to disappear over time. To take the opposite hypothetical, if you consider the accumulated wealth of all countries now, and the relatively low growth of most of them, how could it be possible that all that money could find good investment return rates? Except for isolated pockets of growth, need for investment, where will we find broad returns anything greater than a few %? So, until something fundamental about the money supply changes, are we in for a long period of pretty much 0% returns? I would love to know some more sophisticated ways to understand the situation.

andromeduck 6y ago
Growth correlates best with productivity and productivity is a factor of capital effiency and manpower, and manpower increases with population.
linuxftw 6y ago
We are in uncharted economic waters, and we have been for about 12 years. Not only is there 0% (or lower!) interest rates, we also have QE (central banks buying government assets directly), we have central banks buying corporate debt now! This is creating market bubbles. Worthless tech stocks is one place. Housing prices have soared. Whatever might happen might happen quickly.
- majormajor 6y ago

Redploy 6y ago

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lostmsu 6y ago
@dang

harel 6y ago

Before the financial crisis of 2008 you could get those in the UK. I had one just as the fan got hit by something back then. 25 years, 0%, no deposit. They were quite common. It was so good I didn't remortgage for 10 years until we sold and moved.

fifticon 6y ago

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.

saberdancer 6y ago
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.
- KSteffensen 6y ago
  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.
tsjq 6y ago
That sounds like "Shariah compliance"

alkonaut 6y ago

When interest rates are as low as they have been now for a long while (sub 2% for homes), the interest rate portion isn’t the limiting factor for how much you can afford to borrow. Instead, to prevent prices going to infinity, there is usually some kind of laws in place for maximum length such as 30, 50 or 100 years (infinite I.e interest-only was common at least in Sweden when rates were higher), a minimum down payment such as 15%, a maximum size of the mortgage relative to the income etc. Sweden now has all of these (!) so for most buyers, whether the interest is 0.5 or 3.5 makes very little difference. Most buyers, especially first time buyers, will be capped by one of the other limits regardless. As it has been pointed out, this loan isn’t 0% since it’s not the effective interest rate including fees that is 0%.

adventured 6y ago
This effect has also resulted in the people of Denmark becoming the most indebted households on the planet [1], which is increasingly a common theme among such low rate borrowing nations. Norway and the Netherlands are two of the other most indebted household nations. So the real cost is far beyond the low interest monthly payments, it ends up becoming a society-level risk of economic debt suffocation as people load themselves with ever greater amounts of housing obligation, and it sets the stage for a hyper regressive society where housing is far too expensive and you have to bury yourself in debt to buy in. 0% mortgages are cheered, while the staggering monthly payments caused by the asset-inflationary nature of those 0% rates is ignored (resulting in eg Denmark becoming buried in household debt their incomes barely support). [1] https://i.imgur.com/m5E6Tvd.png https://i.imgur.com/m5E6Tvd.png

jschulenklopper 6y ago

In NL, some banks issued mortgages with interest percentages linked to Euribor interest rates (like +0.5% on 3-month Euribor rate). Once the Euribor dropped below -0.5%, the banks actually had to pay out the interest difference (if there weren’t other bank charges added)... Some people, but likely to be just hundreds of customers, not much more, actually have a mortgage (with ING and Rabobank) for which they receive money at this moment. The same mortgage product cannot be bought anymore...

vachi 6y ago

The key term here is Danes, not residents of Denmark, but individuals who are born or naturalized Danes, even many of the naturalized ones do not get the same rates. By default Danes get ~5% downpayment where none Danes get ~40%.... yay

SebastianKumor 6y ago
Not true, my friend(who is not a danish citizen) bought a flat in copenhagen and got 5% downpayment
paozac 6y ago
Indeed, if you're a foreigner the conditions are far worse: higher interest rate, higher downpayment e lower loan amount.
jopsen 6y ago
Well, given that the interest rates are negative, it's kind of hard to tell if 5% downpayment is better than 40% downpayment.. Afaik, the norm is 20% down, but the banks will loan you another 15% at a higher rate if you want that.

LatteLazy 6y ago

Here in the UK some people had mortgages that were "x% below base rate". When the 2008 crash happened, rares fell to 0 or 0.25% and they were paid by their lender for the privilege of having borrowed.

ur-whale 6y ago

Capitalism has gone full circle and come back the other side.

renewiltord 6y ago

Looked it up and prices are comparable to America with far lower median income. I think the US situation is better for most people.

volkerp 6y ago

Bought an apartment in Germany this year. My effective interest rate is 0.74% fixed 20 years with a downpayment of 40%. The bank guy said the bank will make no money on this loan. They do it anyway because they want the object in the portfolio. Inflation in the housing market has been tremendous in the last years in germany.

317070 6y ago
> The bank guy said the bank will make no money on this loan. Ha, I believe that the guy told you that, I don't believe he is correct. :) The bank is not a non-profit and is totally making money on that mortgage. A considerable margin in fact, given how much effort goes into it.

barbarbar 6y ago

The article does not say anything about the price of the bonds. So it is kind of useless information. For example if it is 0.94 it may be worse than a 0.5 coupon bond with a higher price.