20190921-Get paid to buy a house: The Dirty Story behind Negative Interest Rates


ITM Trading (Get paid to buy a house:  The Dirty Story behind Negative Interest Rates)

-20 Year mortgages hit zero for the 1st time in Danish rate history.  This meant with -0.5% rate, if you bought a house for one million and paid off your mortgage in full in 10 years, you would pay the bank back only $995,000.

-In Denmark, much of the bank funding came from covered-bond (mortgage bond ) market.   
-Mortgage bond – the bank takes your mortgage and package it as bond and sell it to investors in the security market.   In the event of mortgage default, the bond holders will be first in line to be paid back not the homeowners. 

-The mortgage bond market is very important to Denmark, because 6 most important banks in Denmark use mortgage bonds primarily to get funding for their daily banking operations and investments.  (Wendy:  These are like savings and loans banks back in the 80’s before the savings and loans bank crisis in the US.)

-Denmark’s mortgage bond market is split into fixed rate long-term bonds and short-term bonds (3 year average).  In the short term bond market, the borrowers have had access to negative rates for a while.   But negative interest rates on long-term bonds were not implemented until now.

-So why the banks issue negative interest rates knowing they will get paid less for what they lend out?

-So much wealth is built on the rising real estate market, not just in Denmark but rest of the Eurozone.   The banks have to somehow keep this scheme going.

-A way to keep the real estate prices high.  The lower interest rates with easy credit inspire people to borrow more.   Therefore, it will drive the real estate prices up.

-Since 2014，  in Europe, once they introduced negative interests in 2014, the mortgage rate went down.  And people were not unhappy with it because their house price went up.

-Since then, the house prices in the Europe went up on average about 16%. (9:45)

-They will continue to build this real estate market bubble until it pops.


-Therefore negative mortgage rates on the surface is a good thing for the home buyers, not only they will lower their mortgage payments but also raise prices on their house.  However, it is just fueling the real estate market bubble until it burst!  


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