Danish bank launches negative interest rate mortgage (opens in new tab)

These bonds are considered to be very stable, about the same quality as state bonds, as the lenders will only lend up to 80% of the value of the house (an ordinary bank loan must be used for the remaining fraction) so can usually recover most of the money through a forced sale. Also there's a fee on top of the bond rate to absorb the losses as far as I understand. The fee depends on the security percentage, so if the lender only has a security in the top 60-80% part of the value of the house, the fee is much higher, see the tables here:

https://www.mybanker.dk/sammenlign/bolig/bidragssatser/

The Danish central bank has had negative interest rates for some time, and these real-estate bond rates have also been falling.

When taking out a mortgage, you can either opt for a fixed rate for up to 30 years, or variable-rate bonds where the interest is redetermined periodically, e.g. once a year. The variable-rate bonds have been negative for some years now. The news here is that the rates have been falling even more lately, and that you can now get the negative rate fixed for up to ten years.

In any case, it's the bond investors who are losing money, not the real-estate lenders who apply a fee on top, both as a rate and a fixed fee when applying for the loan.

The rates are so low that I think that if you're in the low-risk category, you might end up with a small negative total rate. Of course, the fixed fees when obtaining the loan may eat that.

For some loans, on some conditions, the morgage is actually negative, and lender is either paid a quartely price, or the debt is lowered accordingly. (This is for the morgage named F5, with a fixed 5year rate, and when the house has very low debt, then the fee charged, is also lower, as it is based on risk)

The more reasonable way to look at it is that it is high inflation and a weak housing market. If the housing market was so hot, why would interest have to drop below zero?

Rather, houses are extremely expensive because money for houses (i.e. mortgages) is extremely cheap.

Cheaper debt means people take out larger debt to continue buying houses at market rate. Housing supply continues to deplete and people continue to pay a premium as more expensive houses are the only thing on the market. Lending drying up for the non-capital class will deteriorate the housing market.

I think a lot of headlines and people are conflating the negative interest rates with other unrelated signs.

(As I understand it) the Eurobor rate is negative (the rate that the central bank lends to the other banks), so its unlikely that the bank are taking the hit directly.

Workaround: don't be poor.

I imagine that housing in Copenhagen is similar to Amsterdam, and has been appreciating quickly.

From an international perspective, I think it can be argued that these locations are still undervalued. They're still somewhat affordable to local tech workers, whereas in locations like SF, NYC, LA, Toronto, London, etc.. they're not. And from the perspective of Americans, or say people in Hong Kong, these properties are remarkably cheap due to your socialized economies.

I'm still surprised that foreigners haven't purchased all of the real estate in the city centers of Denmark and the Netherlands.

Even if you could hold paper cash, you'd still need to store and secure it, which costs money.

When looked at through that lens, it makes more sense. Rather than giving someone a loan that you expect to get paid for the risk, you're asking them to hold your money for a while, and they are expecting to get paid for the risk (of having to pay you back more in real terms than you lent them).

Negative interest rates are supposed to spur investment elsewhere. However, negative rates have not led to the desired economic expansion in places like Japan that have had them for years.

Inflation is very low in Denmark, near a deflation point, which is generally considered bad. The bank is trying to spur inflation with these negative rates.

What would explain the current scenario, where lenders will lend at negative rates, is:

a) investing opportunities suck, and

b) they can't reliably hold their dollars/kroners anywhere cheaply.

Is this a good thing for people who hold cash assets? Meaning, would you be able to buy say a $40,000 car for $20,000 in case this happens?

Now who buys the bonds then and “loose” money? Mostly institions, pensionfunds, corporations and normal investors. They take on theese investors, because they have to.. rates in banks are even lower (even more negativ), and deposits are only insured for about 100.000euro. These bonds, while negative, are more secure, and less negative.

Negative rates only happens when investors shy away from stocks and just want their money to be safe for the next 5-10 years. Investors are actually willing to pay just to have their money kept safely out of the stock market. What does that tell you?

There is so much volatility (read: Trump). Stocks can both go up and down with a tweet. Until the next day or 4 hours later. So investors flees stocks and look for safe bonds.

I as a home owner would be interested for a remortgage to stick in the stock market (or even a risk free investment). Not really a poor person option though.

This would presumably just inflate the/a housing bubble, which doesn't seem like it would inherently help poor people, you cant really liquidate the asset as you need to live in it. Second homes on the other hand....

So to avoid inflation, instead of printing money, we lower interest rates.

But once interest rates go below 0, that also undermines the time value of money.

Oops.

Notice that these are fixed rate loans:

>0-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%.

Increasing inflation would help those who have taken fixed rate mortgage loan because the real value of their loan will decrease faster.

If investors didn’t trust banks, they would demand high interest rates when borrowing banks their money, just as they demand higher interest from those who want to make smaller down-payments on houses, or on credit card debts.

Looking at https://www.investing.com/rates-bonds/european-government-bo..., many European countries (even Spain and, short-term, Italy) can borrow money from the market at negative interest rates.

That must mean those borrowing them money must be confident they will get that money back (not that surprising, given that the ECB keeps printing money)

I don't think that's true? Can you explain what you mean? It's probably true that a total collapse won't be tolerated, just like a total collapse of the banking sector wouldn't be tolerated.

And true, even with negative rate this loans kurs plus fixed costs still mean you are still paying the bank more than they are loaning you.

This happens because investors a wary of putting too much of their capital in stocks. Nobody knows what Trumps trade wars will lead to, so that's a significant risk factor for stocks.

Consequently, investors look for other places to put their money until the uncertainties gets cleared up. Preferably somewhere safe - meaning not necessarily in a bank as banks can fold. Danish real-estate bonds fits that: The Danish real-estate market is generally considered sound.

Furthermore, Denmark has a declared policy of closely following the Euro. The DKK has to be within a narrow band of 2.25% (IRRC) of the Euro. Having followed this policy ever since the EMS disbanded, investors generally trust this commitment.

Which means that until Trump cleans up the disturbance he has created, investors will flee stocks and look for safe bonds, to the extent that lenders/investors will actually pay for safe investments.

While attractive for lenders, it is a sign that something is very wrong with the economy. In a healthy climate money would flow to the stock market.