Negative interest rate mortgages????????

Question

What world are we living in?!?!?

https://www.google.com/amp/s/amp.theguardian.com/money/2019/aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage

Get paid from a lender to hold a note on the property???????

It’s easy to say I think it’s crazy for the US to ever get to this point....but if it does - what does it say about valuations?

Charles Carillo · Answer

@Victor Vella

I have been following the interest rates in Europe since some of our investors are based there and this has been going on for quite some time. In 2012, the Danish government sold 10-year government bonds a -.32%. The 10-year government bond is currently -.598%. Lots of European banks are charging customers a fee to leave their money in their banks which is another important part not to forget. If a bank is charging 1% to customers for their funds being deposited and they are loaning it for -.50% there is a .50% spread.

Sources:

https://www.reuters.com/articl...

https://www.marketwatch.com/in...

Victor Vella · Answer

@Jonathon Weber Absolutely there would still be a monthly payment lol.

No ones confusing a monthly debt payment obligation with interest cost. If the interest cost is below negative 1% you would be effectively be getting a 1% annual principal deduction just for meeting your monthly payment obligation.

As far fees go. Even if your closing costs are $5,000 on a $200,000k loan with a negative 1% interest rate you would have a break even if 2.5 years before your -1% started paying you.

But to be fair banks have always charged thousands in dollars in fees. What’s changed in the interest rates of the debt instruments have continually depreciated.

I’m just curious how this impacts valuations on real estate. Seemingly rates have gone down values have generally have increased.( with some volatility in there.I just wonder if there is eventually a decoupling of these - or maybe that’s not possible or maybe this leads to a massive debt crises due to increased risk taking.

Jonathon Weber · Answer

You don't get paid. They are charging you. There is still a monthly payment, fees, etc.