The bizarro world of negative interest rates continues around the world. This time it’s Denmark making headlines with negative interest rates on mortgages. Yes, that’s right, a Danish mortgage lender will actually pay you to take out a mortgage to buy a house. That’s how badly central bank monetary policy has screwed up everyday financial transactions.
In actual fact the bank won’t be cutting borrowers a check, rather just forgiving part of the mortgage payment. But that means that borrowers will actually pay less for a house than its actual purchase price. Shouldn’t the bank care about that? Apparently not, as the fact that the bank can borrow money itself at negative interest rates means that the bank still makes money on the interest rate spread.
Naturally the thought of negative interest rates has spurred a great deal of interest around the world, including from Americans who would love to get negative interest rate mortgages here in the US. With housing prices continuing to rise, many potential homebuyers undoubtedly feel as though negative interest rates are the only way that they could afford to buy a home. But will negative interest rates ever come to the US?
Right now it may not look likely, but that’s only because the Federal Reserve still has the highest interest rates of any of the world’s major central banks. That could change, however, over the next few years as a recession looks increasingly likely. There’s no doubt that the Fed won’t hesitate to send interest rates back down to zero like it did during the financial crisis, but zero was always seen as the lower bound.
This next time, however, the Fed may try to push interest rates negative just like the European Central Bank, Swiss National Bank, and Bank of Japan have tried to do. Whether markets in the US would react accordingly is questionable, however, as the practical negative effects of negative interest rates are quite real. So if you’re hoping for a negative interest rate mortgage to buy a house, you may be out of luck.
This article was originally posted on Red Tea News.
