Jyskye Bank, Denmark’s third largest bank, recently became the first lender on earth to offer a mortgage with a negative mortgage rate.
Jyskye Bank is offering borrowers a 10-year mortgage at -0.5%. Borrowers are still required to make monthly payments; however, the balance of their mortgage will be reduced each month at a rate greater than their monthly payments! While this sounds insane, negative rates are not an isolated incident. Consumers in many countries around the world are finding themselves paying banks for the opportunity to deposit money!
A number of Central Banks in countries around the world are offering institutional lending rates near or even below 0%. These low rates are meant to reduce investor’s interest in the local currency, boost money supply into their economy, and increase demand for borrowing. A weaker currency gives a country’s export a competitive advantage and boosts inflation by pushing up import costs.
In reality, Jyskye Bank is still charging fees to obtain a mortgage. Thus, borrowers will likely still pay back slightly more than they borrowed. However, the question begs to be asked, might we see negative mortgage rates here in the United States?
Policymakers in the U.S. are unlikely to allow rates to go negative. In other countries, the experiment with negative rates has not produced the expected results largely due to the adverse effect they’ve had on consumer confidence. “They’ve had a dampening effect on economic growth,” said Kate Warne, investment strategist and principal at Edward Jones. “You worry more about what negative interest rates mean for the economy and your future rather than focusing on the very good deal on the mortgage.”
Asked about the possibility of negative mortgage rates here in the U.S., Danielle Hale, chief economist at Realtor.com said, “I don’t expect to see negative mortgage rates in the U.S. any time soon; but even if or when we do…it will probably take a few years before we see the possibility.”
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.