Will we ever see a 0% mortgage?

[hakrjak]

I know that mortgage rates are at historic lows, and the radio ads have everybody rushing to refi and lock in now -- but these rates have done very little to move real estate markets. Even with the lowest rates in 50 years, people are still not buying houses.

Discussion topic: Will we ever see a 0% fixed mortgage, or anything approaching a 0% mortgage used as a tool to spur the real estate markets back to life?

How about a 2% fixed mortgage? Why or why not? (Not as far-fetched as it sounds, I have at least 1 ARM right now sitting at 2.75%)

Cheers,

- Hakrjak

 

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[Kak]

No, to lend money is to assume risk. There is no reason to assume that risk without reward.

The rates are artificially low right now, that is why you hear frequently about how hard it is to get a loan. It is already getting to the point where the reward for the banks is not good enough to assume the risk.

Our market needs to be released from the stranglehold of the FED policy before interest rates go back up where they belong and private banking begins charging what they need to charge depending on risk.

If you think about it... if the mortgage rates could not beat inflation and they were loosing money every month, how long do you think that bank would be around?

 

[hakrjak]

No, to lend money is to assume risk. There is no reason to assume that risk without reward.

The rates are artificially low right now, that is why you hear frequently about how hard it is to get a loan. It is already getting to the point where the reward for the banks is not good enough to assume the risk.

Our market needs to be released from the stranglehold of the FED policy before interest rates go back up where they belong and private banking begins charging what they need to charge depending on risk.

If you think about it... if the mortgage rates could not beat inflation and they were loosing money every month, how long do you think that bank would be around?

Interesting thoughts, but banks do not depend soley on 1 year's mortgages for their income -- they've got portfolios with loans that have been made over a 30 year period. I guarantee there are banks right now still holding 9% mortgages from the early 90's on their books. Even though rates are around 4.5% right now, the average rate of mortgages on the books at banks across the nation is probably closer to 7-8% at this time (Could be higher, I'll bet we'd be shocked?)

My discussion question is based on the premise that the Federal government might provide some incentive to banks to lend at low low rates in order to move housing inventory off the books and bring the economy back. Obviously, I wasn't saying that banks should risk money with no reward

Cheers,

- Hakrjak

 

[sharky]

You will never see 0% mortgage rates (however maybe you'll see a short term teaser rate at 0%) because the banks/mortgage lenders need to add a margin to their cost of funds. Its called arbitrage, and while they are paying you 0.001% on your savings account, they need to lend it back out at a rate higher than that in order for them to make money.

 

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[BeachBoy]

in Canada mortgages rates reset every ~5 years.

you are already very lucky to be able to lock in for 30 years at 4%!!!!

 

[bflbob]

I've heard of 0% interest rates in the private money / private mortgage markets.

Let's say some guy demands $100k for his house that is only worth $80k.

You might offer to buy it for $120k (he thinks he's making out well), but only if he finances for 30 years at zero percent.

How does it work?

If you were to buy for $80k at 4%/30 years, you'd pay a total of $137,495.61 in P&I. You'd save $17,495.61 by paying him $120k at 0%/30 years.

He gets to brag that he sold his place for more than he asked, even in these tough times. You get to buy it at a discount.

He's getting 20% more than he asked. You are buying at market, 100% financed, without having to qualify for bank financing.

Even if he demanded 10% down ($12k), you'd be money ahead.

The downside for you is on the tax end. You be forced to depreciate the $120k over 27.5 years (I think), instead of being able to write off the interest each year (plus depreciation on the $80k). Even then, there are certain "imputed interest" rules that may allow you to handle it like a P&I mortgage on your end.

Creative accounting works well when standard financing dries up.

 

[wade1mil]

I guess if they started charging interest for having a savings account, they could loan at 0%. They have to make a spread somewhere.

 

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[BeachBoy]

they can do like cars

sell you zero percent, but sell at a much higher price... so the interest is actually hidden inside the price.

It's working very well for cars (pay cash, you save $5k!!)

 

[wade1mil]

they can do like cars

sell you zero percent, but sell at a much higher price... so the interest is actually hidden inside the price.

It's working very well for cars (pay cash, you save $5k!!)

To profit as much as an amortized loan, that would mean buying a $250,000 house for $483,000 at 5% interest. You would have to hide $233,000 in the sale price.

 

[BeachBoy]

we're talking about seeing 0%, not 5%.

if rates were at 1%, 1% amortized over 30 years on 250k is "only" $39k

of course, at 5% it's impossible.

 

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[kwerner]

Move to Japan.

Bank of Japan adopts zero-interest rate policy

 

[millionairesol]

Non-Interest Banks like the one in Bangladesh, one in UK and perhaps the possible Islamic Banking being proposed in Nigeria might just fit into this zero percent mortgage thing. Though Not very sure yet. But I still think they may support this cause for economic revival.

 

[roc]

Funny I just had this discussion with a friend of mines, who happens to be a finnancial adviso FWIW. Basically he brought up the fact that Japan has 0% mortgages to basically promote home ownership, the other reason why is becAuse inflation is terrible. The same course for the US IMHO. Roc

 

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[zaiteku]

my cousin has a 1% mortgage in Japan. Its almost free money. Of course, his house will only go down in value over time...

 

[Flatlander]

I guess if they started charging interest for having a savings account, they could loan at 0%. They have to make a spread somewhere.

This is actually happening. I read the other day about a bank that is charging people with huge balances a fee. By huge I think it was $50 million+.

 

[hakrjak]

The US economy has tracked Japan's lost decade pretty well so far.....

 

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[RealOG]

You are thinking one dimensional. 0% interest is simply a marketing tool. What about fees and complimentary products?

Some banks charge a fee each month to hold/process your mortgage. Also, they could set the payment date to be earlier than the due date and make a spread on the timing. They could require a savings account or retirement account or credit card to get access to the 0% mortgage. What about points?

There are a variety of way to profit from a loan outside of the standard interest rate.

 

[roc]

The US economy has tracked Japan's lost decade pretty well so far.....

YUP! Actually want my friend said! He stated that the Japanese economy still has not bounced back since its stock market crashed in the 80's, plus the latests natural disaster did not help its recovery at all.

 

[hakrjak]

The Fed sounds like he may start buying treasuries to push rates to all time lows in an attempt to spur borrowing and bring back the real estate market. Sounds like getting closer to a 0% mortgage is becoming more of a reality all of the sudden!

I looked at rates today because I'm looking at buying a new primary, and I can get a 5 year Interest Only Arm for 2.85% right now. Holy snikees! Thinking about borrowing $240k for $575 per month. Fixed fully amort would be around $1k/mo. Intriguing indeed!

- Hakrjak

 

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[garyfritz]

I don't know if Bernanke can force mortgage rates down to 0%. Bankers are going to want something for their risk, no matter what he does.

I just refi'd (buying out wife's half of house in divorce) and got 4.5% on a 30 yr. Would have loved to do a 15 yr but with the size of mortgage I had to take out, a 15 yr payment was just too painful -- 60% higher. Now a 2.85% interest-only would have been sweet, payment-wise. But unless you're sure you're going to move within 5 yrs, it's a big gamble. Who *knows* what the rates could be in 5 years.

Plus after 5 yrs I'll have paid off $40k. I might as well consider it an enforced $500-600/mo savings plan...

 

[hakrjak]

I checked into these interest only loans Yahoo Finance was showing and they don't exist. I was able to find some Interest only programs but they required 20% down, and their payment was barely cheaper than a 30 year fixed!

Stuff like that is why the economy is stuck in the mud... You can borrow $200k no questions asked fir a BS education but you can't get cheap money to invest in real estate at market lows, which you would actually have a decent shot to profit from or at least break even one day....

 

[MCD]

I would say 0% is a possibility, not likely but still possible. Obviously banks aren't going to loan money with no return so I'm thinking that if this was to be done there would be some kind of string attached. Leave it to the banks to think up of some creatively deceptive way to offer 0% loans.

 

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[hakrjak]

And rates continue to drift lower....

 

[socaldude]

no because banks are not gonna lend money out for less than they pay for it.

 

[Brander]

not in retail.

 

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[hakrjak]

Here's a thought -- get the US Gvnt to offer 0% loans in exchange for small investors buying up all the Foreclosure inventory on the books right now. I guarantee it would clear inventory off the books, and you'd have a huge bump to the economy from all of that activity.

Cheers,
-Hakrjak

 

[hakrjak]

Old Thread -- but this thought is fresh in my mind today, after the Fed announced an open-ended QE3 -- with no end in sight. He's going to push rates down to an unprecedented level. May not mean 0%, but could we be nearing a sub 2% mortgage rate? Very interesting for those of us holding ARMs, and even more interesting for those of us considering padding our rental property portfolios.

-Hakrjak

 

[PatrickP]

I think you are good at forseeing the future.

I just spoke with a friend last week. She told me she had an approx 450,000 mort. Stopped paying it over a year ago. Two weeks ago she got an offer from her bank cut the mort to $325,000 at 2.12%

WOW Maybe I shouldn't have sent BOA 220K to pay off my mort and just stopped paying instead lol

 

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[G-man422]

Time to build up the real estate portfolio

 

[Ikke]

Not a mortgage but Dutch and German governments were able to lend money at a negative interest rate earlier this summer.