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Negative rate mortgage!

toofast2live
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Negative rate mortgage!

#227390

Postby toofast2live » June 6th, 2019, 10:16 am


dealtn
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Re: Negative rate mortgage!

#228019

Postby dealtn » June 8th, 2019, 4:22 pm

I was on a mortgage rate of Base Rate less 52bps for a 3 year "teaser" period some years ago. When the MPC reduced Base Rate to just 0.50% I had an "interesting" conversation with the provider on how I could set up a direct debit for their payment to me. Obviously no such arrangement took place, but there was no restriction, or floor, to the effective rate, so for a period of time my mortgage balance was reducing whilst my monthly payments were £0 each month.

Spet0789
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Re: Negative rate mortgage!

#228020

Postby Spet0789 » June 8th, 2019, 4:42 pm

I doubt this is true. 10 year bund (German government bond) yields are at around -0.3%. So even though this is in DKK it feels low to me. In Switzerland government bond yields are more negative still and they have 10 year mortgage rates in the 1-1.5% area.

ursaminortaur
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Re: Negative rate mortgage!

#244097

Postby ursaminortaur » August 13th, 2019, 9:38 pm

Spet0789 wrote:I doubt this is true. 10 year bund (German government bond) yields are at around -0.3%. So even though this is in DKK it feels low to me. In Switzerland government bond yields are more negative still and they have 10 year mortgage rates in the 1-1.5% area.


The Guardian is reporting it as well

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

A Danish bank has launched the world’s first negative interest rate mortgage – handing out loans to homeowners where the charge is minus 0.5% a year.

Negative interest rates effectively mean that a bank pays a borrower to take money off their hands, so they pay back less than they have been loaned.

Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%.

Under its negative mortgage, Jyske said borrowers will make a monthly repayment as usual – but the amount still outstanding will be reduced each month by more than the borrower has paid.
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In reality, the Jyske mortgage borrower in Denmark is likely to end up paying back a little more than they borrowed, as there are still fees and charges to pay to compensate the bank for arranging the deal, even when the nominal rate is negative.


Though the Guardian report makes it sound like this has just happened rather than something which was available back in June.

richfool
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Re: Negative rate mortgage!

#244102

Postby richfool » August 13th, 2019, 9:59 pm

I would suggest one would want to be very careful before taking out a mortgage, even with a negative interest rate, if it is in a currency other than one's own home currency.

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Re: Negative rate mortgage!

#244107

Postby Lootman » August 13th, 2019, 10:16 pm

ursaminortaur wrote:Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal at -0.5%, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0% and a 30-year mortgage at 0.5%.

Under its negative mortgage, Jyske said borrowers will make a monthly repayment as usual – but the amount still outstanding will be reduced each month by more than the borrower has paid.

richfool wrote:I would suggest one would want to be very careful before taking out a mortgage, even with a negative interest rate, if it is in a currency other than one's own home currency.

Jyske Bank is an interesting animal. Maybe 25 years or so ago, when I was working in Europe a lot, I needed an account and Jyske had very good FX and account options. They also offered what they called an "Invest Loan", where your investment was used as collateral for a loan in a low interest rate currency like DEM and CHF, and the proceeds invested in high interest rate notes, like those denominated in Lire, Peseta, Escudo and, prominently, DKK mortgages.

This was around the time of the ERM, i.e. pre-Euro. The idea was that since all the currencies move together, you might as well hold the one with the highest interest rate and borrow in the one with the lowest interest rate.

Needless to say this worked great until it didn't. It was like an interest rate arbitrage hedge fund. The leveraged rate differential was highly profitable until the more marginal currencies collapsed against the core currencies.

So richfool is right here. Mortgage rates in low interest rate currencies have been available in the UK for a long time. But you can find the loan amount increasing every month.

In any event I cannot see any UK lender issuing such mortgages. They are much too greedy and, if they did, you can bet there would be a even more upfront fees than they have already.

ursaminortaur
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Re: Negative rate mortgage!

#244119

Postby ursaminortaur » August 13th, 2019, 11:44 pm

richfool wrote:I would suggest one would want to be very careful before taking out a mortgage, even with a negative interest rate, if it is in a currency other than one's own home currency.


Agreed even in normal times it would be risky but it would be more so now with the threat of the pound sinking further in association with the increasing chances of a no deal brexit.

Clitheroekid
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Re: Negative rate mortgage!

#244280

Postby Clitheroekid » August 14th, 2019, 3:52 pm

richfool wrote:I would suggest one would want to be very careful before taking out a mortgage, even with a negative interest rate, if it is in a currency other than one's own home currency.

But presumably there would be nothing to stop you raising a loan on your existing property and investing the mortgage advance into highly conservative euro-nominated securities.

For example, Novo Nordisk A/S and and Anheuser Busch Inbev NV are both `frite bleu' companies, yet NN is yielding 2.7% and AB is yielding 4.5%.

It'd certainly beat working for a living! :lol:

But on a rather more serious note it does illustrate the complete insanity of the modern financial system, and one can't help thinking that such an insane system must eventually self-destruct.

No wonder gold's so popular at present - for the first time in my investing career I'm very tempted to sell some overpriced shares and buy some myself.


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