This is a hypothetical question at this point, but could not find precedence or a loan calculator which could help me as most calculators out on the web presume a positive number for interest rates. However, the way the central banks are going around the world, negative interest rates could be here in a while. As I am writing this some countries in Europe ( I believe Denmark for example) already has negative interest rates for mortgages taken out, not just the fed rate.
So first the practical question:
Anyone have a pointer to a tool which can calculate amortization tables with a negative interest rate . I'm sure I could probably put one together in Excel but I"m sure that road has been traveled on before m.
And the hypothetical questions up for discussion:
- What is the best strategy if one expects negative interest rates to be here in the next 1-3 years ?
- Impact on real estate prices ? or other assets for that matter..
- Inflationary or deflationary effect in the intermediate to long term ? What happens to the value of money ?
- Impact on credit availability ?
Feel free to add questions of your own. I realize this is a hypothetical question which on the surface is unthinkable, but simply want to play out the what/if conversation with fellow investors....Any and all input welcome !
Negative interest rates would mean property is essentially free, so prices would skyrocket. I highly doubt this would happen in the USA, but its nice to dream! I personally think rates will stagnate for a little bit then go up over the next few years.
Yeah, this could never last. I’ll take a $100 million negative interest loan and put it under my mattress. so the bank writes me checks. Since the payments would total less than the amount borrowed everyone would qualify.
@Sam K. I had to google the Denmark example because I couldn’t even believe this at first...but alas it is correct.
From what I can tell, the primary motive for the policy is to keep a tighter exchange rate between the Danish Krone and the Euro. I’m no economist, but I would think geographically speaking Denmark would not want its currency to become too weak relative to the rest of Europe.
Trying to apply this concept to the Euro or the USD, I just don’t see it happening. Sure the Fed Reserve could theoretically do it but it’s not necessary. It’s also intended to encourage the population to spend and/or not use traditional interest bearing instruments. Americans already spend a lot and far too many of them don’t have sufficient savings.
In Denmark we do not only pay interests on loans but also a loan fee. This fee is not regulated and is the loan institutes way to make money. The fee is usually 1-5%.
It is not the banks that loan money for morgages.
So prices have not skyrocket.
I am a real estate agent in Denmark, and though it is true the interest rates (in some cases) are negative, there are added costs, that would make the ‘all cost included’ interest rate positive. Though the interest rates are very low, The banks will never lend you money for free🤓. So I agree that this would be a dream scenario. There are also very restrictive lending rules in Denmark. You can get a loan up to 80% of the house value, but must have 5%down payment in cash, the last 15% are pretty high interest rates, as you can only lend them directly as a bank loan. Further to that you will not get a loan for more than 4,5 times your yearly household income... all in all I would make up scenarios with very realistic interest rates. I also believe that your central bank in the us just, gave the interest rates a notch in the “wrong” direction!?
@Steve Smithy not true. You are still paying the bank and there would be fees. It's likely you could see improved cash flow numbers for some properties. There is no such thing as free. Money is debt.
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