What Can One Expect from Negative Interest Rates?

schizo said:
What I'm more interested in knowing is what this would mean for the mortgage lenders. Can I refinance my mortage at negative interest rate? If so, would my lender pay me interest? :D
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No. In general, you can't. Negative interest rates are a tool of the Central Bank. As a borrower you won't be dealing with the Central Bank. The lender you borrow from will still have to maintain a positive spread. Otherwise they would be taking on risk for no gain, or worse, a loss. To avoid paying a fee (negative interest) to the Central Bank, Commercial Banks will look for uses for their excess reserves. It is possible to obtain a negative real rate on a mortgage, however, under unusual circumstances. One such circumstance arises when you obtain a long dated, fixed rate mortgage in a very low interest environment and keep that mortgage until the inflation rate exceeds your mortgage interest rate. Your real mortgage interest rate will then become negative. At that point the bank will be paying you to use their money, and you will start getting nice letters from the bank's mortgage department reminding you of the virtues of accelerating payment on your loans principle, but not mentioning anything about the affect of the inflation rate on your loans real interest rate. This doesn't happen often because in the U.S. mortgages turnover, on average, about every 7 years. The banks lending model depends on that. If the average time mortgages remain in force lengthens significantly, banks will increase the interest they charge to offset the additional inflation risk.
 
piezoe said:
No. In general, you can't. Negative interest rates are a tool of the Central Bank. As a borrower you won't be dealing with the Central Bank. The lender you borrow from will still have to maintain a positive spread. Otherwise they would be taking on risk for no gain, or worse, a loss. To avoid paying a fee (negative interest) to the Central Bank, Commercial Banks will look for uses for their excess reserves. It is possible to obtain a negative real rate on a mortgage, however, under unusual circumstances. One such circumstance arises when you obtain a long dated, fixed rate mortgage in a very low interest environment and keep that mortgage until the inflation rate exceeds your mortgage interest rate. Your real mortgage interest rate will then become negative. At that point the bank will be paying you to use their money, and you will start getting nice letters from the bank's mortgage department reminding you of the virtues of accelerating payment on your loans principle, but not mentioning anything about the affect of the inflation rate on your loans real interest rate. This doesn't happen often because in the U.S. mortgages turnover, on average, about every 7 years. The banks lending model depends on that. If the average time mortgages remain in force lengthens significantly, banks will increase the interest they charge to offset the additional inflation risk.
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in otherwords, nirp is a non lending tax
 
piezoe said:
Negative interest rates are a tool of the Central Bank. As a borrower you won't be dealing with the Central Bank. The lender you borrow from will still have to maintain a positive spread. Otherwise they would be taking on risk for no gain, or worse, a loss. To avoid paying a fee (negative interest) to the Central Bank, Commercial Banks will look for uses for their excess reserves.
More...


No. You make it sound like neg rates don't affect anyone but banks and not even them because they will move their investments to riskier products.
That is not the case at all. In europe most of the entire yield curve on gov't bonds are negative. And those bonds all sit in someone's portfolio stealing money from the owners of those bonds.

Mortgage rates can't go neg?
The crazy world of negative rates: Banks pay your mortgage ...
money.cnn.com/2015/04/.../negative-mortgage-rates-europe/CNNMoney
Apr 22, 2015 - euro mortgage Interest rates on some European mortgages have turned negative, creating an enormous headache for banks.

Neg rates are an insidious destroyer of economic systems.
Interest rates allocate money between consumption and investment.
At zero rates, there is no incentive to invest for the future.
At negative rates, there is incentive to liquidate current investments.

What will happen to productivity in an economy when there is not only no investment in the future, but current investment is being liquidated?

I'm glad i'm not twenty years old because young people are facing a very bleak future.
 
fhl said:
No. You make it sound like neg rates don't affect anyone but banks and not even them because they will move their investments to riskier products.
That is not the case at all. In europe most of the entire yield curve on gov't bonds are negative. And those bonds all sit in someone's portfolio stealing money from the owners of those bonds.

Mortgage rates can't go neg?
The crazy world of negative rates: Banks pay your mortgage ...
money.cnn.com/2015/04/.../negative-mortgage-rates-europe/CNNMoney
Apr 22, 2015 - euro mortgage Interest rates on some European mortgages have turned negative, creating an enormous headache for banks.

Neg rates are an insidious destroyer of economic systems.
Interest rates allocate money between consumption and investment.
At zero rates, there is no incentive to invest for the future.
At negative rates, there is incentive to liquidate current investments.

What will happen to productivity in an economy when there is not only no investment in the future, but current investment is being liquidated?

I'm glad i'm not twenty years old because young people are facing a very bleak future.
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Goldman Sachs is the result of the Catholic Church prohibition against usury.
 
They feel they need to enforce investments on us that will guarantee a loss of money and every vehicle you might use to escape it are under attack.
Moving to a cashless society so you can't escape neg rates by keeping large amounts of cash.
Transaction taxes on trades so you can't trade your way to a positive rate of return.
And after these, they will advocate taking over pension accounts and stuff them with negative rate bonds. This is already being pushed on the fringe.

It will take extreme ingenuity to retain your wealth with these people around.
 
schizo said:
What I'm more interested in knowing is what this would mean for the mortgage lenders. Can I refinance my mortage at negative interest rate? If so, would my lender pay me interest? :D
More...
Got a call from my bank last night.
They said "we are prepared to offer you a line of credit...at Prime plus 4 1/2!"
I said "Get the Fuck outta here!!!"
 
I bet a lot of students who took on massive debt will soon find themselves in an uproar. This will stir up more drama than the subprime fiasco.
 
LacesOut said:
Got a call from my bank last night.
They said "we are prepared to offer you a line of credit...at Prime plus 4 1/2!"
I said "Get the Fuck outta here!!!"
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you are joking, they didn't offer you a large enough line of credit to take the money and walk into the sunset.
 
ETcallhome said:
I'm surprised we are not hearing about more and more mortgages being paid off early. There was a time when your money market paid more than your mortgage cost. Unless I'm missing something, seems like paying off the mortgage is a better deal than sitting in the bank waiting for a less rainy day.
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Is there a public company that makes safes?
 
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