So yes, being able to buy back our mortgage’s bonds at their market value may be a boon, but the fact that the Dane’s require at least 20% down for their system to work would be a nonstarter for so many people. Roughly 65% of Americans are living paycheck to paycheck. A small minority of people are going to have the ~$80,000 to required to put down on a $450,000 house. Ultimately, turning housing into such a profitable investment option has led us to this situation, as having fewer houses means the existing houses are worth more and will only increase in value, making it a much more attractive investment than building new housing en masse.
require at least 20% down for their system to work would be a nonstarter for so many people.
That’s not really how it works, though. You actually only have a to put down 5 percent or more in Denmark. Much like the US.
The difference is that, in Denmark, the mortgage (the loan with the covered bond) can only finance 80 percent of the value, the rest can be financed by a regular bank loan. So 80 percent mortgage and 15 percent bank loan.
I was going off of the article, which stated that 20% is required in Denmark. Seems that they didn’t specify that well, so I apologize for the ignorance.
The down payment requirements were introduced in the 2010s, because too many people got their fingers burned on rate free loans. Prior to that it was possible to make a mortgage of 100% of the capital and no rate payment for 10 years, in which buyers only had to pay interest which was around 6% at the time or variable between 2-4% or so.
It obviously broke when the 10 years were up and people had to “suddenly” pay both rates and interest on way too large loans. The banks had expected people to refinance before that and were gladly passing out unrealistically large loans.
It was crazy beforehand. You could walk broke and unemployed into a bank and get approved for buying houses worth millions, because you didn’t have to prove any kind of income except for covering the interest for the next month.
The down payment requirement forced the banks not to pass out these “free” loans to people without money. Not only should people be able to stomp up some cash, it also requires the bank to participate in the risk that they sell.
Now more currently, this up-conversion rage is something else. It can free up cash, right? Sure, but it makes the most sense if the customer has more expensive debts to be covered by that “free” liquidity. Like the bank loan? So that’s why the banks have been pushing it well out of what is reasonable. Yes, there were money to be made for a small window in 2022, but by the time your bank advices you to do it, you can bet that it is well past the good deal. For customers, it only makes sense in the long run if you can close more expensive loans or desperately need liquidity for perhaps buying a more expensive house, and don’t mind pushing the payments ahead into the future where you will “obviously” make soo much more money.
Personally I have converted my loan two times, but only downwards from 4% to 2.5% to 1%. I skipped the lowest offer of 0.5% because the savings didn’t cover the costs of doing it. I will be happily “locked in” on my 1% mortgage until I sell this house. Refinancing might free up cash, but it doesn’t balance in the long run. I’d basically be paying myself back for taking out that cash now, while the bank would take out their part right away.
As OP pointed out you can put up 5% and get 15% from a bank loan for the rest so really it’s the same thing with extra steps for a lot of people. You don’t actually have to have 20% on hand.
A much bigger impact would have tearing down all the stupid parking spaces and changing zoning regulations to build higher density housing. The urban sprawl is unsustainable long term.
I doubt it’d fix the housing crisis here, but it would certainly help. I’m not sure how many people would warm up to it, though. A large part of our problem is that there isn’t any affordable housing. The fact the average house cost in 2023 was around $450,000 is insane, especially given the median income in the US was roughly $75,000 in 2022.
So yes, being able to buy back our mortgage’s bonds at their market value may be a boon, but the fact that the Dane’s require at least 20% down for their system to work would be a nonstarter for so many people. Roughly 65% of Americans are living paycheck to paycheck. A small minority of people are going to have the ~$80,000 to required to put down on a $450,000 house. Ultimately, turning housing into such a profitable investment option has led us to this situation, as having fewer houses means the existing houses are worth more and will only increase in value, making it a much more attractive investment than building new housing en masse.
That’s not really how it works, though. You actually only have a to put down 5 percent or more in Denmark. Much like the US.
The difference is that, in Denmark, the mortgage (the loan with the covered bond) can only finance 80 percent of the value, the rest can be financed by a regular bank loan. So 80 percent mortgage and 15 percent bank loan.
I was going off of the article, which stated that 20% is required in Denmark. Seems that they didn’t specify that well, so I apologize for the ignorance.
No worries. The article isn’t clear on that.
The point of requiring 20% is to suppress demand, pushing prices down toward affordability.
The down payment requirements were introduced in the 2010s, because too many people got their fingers burned on rate free loans. Prior to that it was possible to make a mortgage of 100% of the capital and no rate payment for 10 years, in which buyers only had to pay interest which was around 6% at the time or variable between 2-4% or so.
It obviously broke when the 10 years were up and people had to “suddenly” pay both rates and interest on way too large loans. The banks had expected people to refinance before that and were gladly passing out unrealistically large loans.
It was crazy beforehand. You could walk broke and unemployed into a bank and get approved for buying houses worth millions, because you didn’t have to prove any kind of income except for covering the interest for the next month.
The down payment requirement forced the banks not to pass out these “free” loans to people without money. Not only should people be able to stomp up some cash, it also requires the bank to participate in the risk that they sell.
Now more currently, this up-conversion rage is something else. It can free up cash, right? Sure, but it makes the most sense if the customer has more expensive debts to be covered by that “free” liquidity. Like the bank loan? So that’s why the banks have been pushing it well out of what is reasonable. Yes, there were money to be made for a small window in 2022, but by the time your bank advices you to do it, you can bet that it is well past the good deal. For customers, it only makes sense in the long run if you can close more expensive loans or desperately need liquidity for perhaps buying a more expensive house, and don’t mind pushing the payments ahead into the future where you will “obviously” make soo much more money.
Personally I have converted my loan two times, but only downwards from 4% to 2.5% to 1%. I skipped the lowest offer of 0.5% because the savings didn’t cover the costs of doing it. I will be happily “locked in” on my 1% mortgage until I sell this house. Refinancing might free up cash, but it doesn’t balance in the long run. I’d basically be paying myself back for taking out that cash now, while the bank would take out their part right away.
As OP pointed out you can put up 5% and get 15% from a bank loan for the rest so really it’s the same thing with extra steps for a lot of people. You don’t actually have to have 20% on hand.
I’ve been found out! I didn’t read the article 😂
It’s all good lol
A much bigger impact would have tearing down all the stupid parking spaces and changing zoning regulations to build higher density housing. The urban sprawl is unsustainable long term.