Negative interest rates

drkelly

drkelly

Dipstick who put two vehicles on jack stands
Joined
Mar 21, 2005
Location
Oak Ridge/Stokesdale, NC
I honestly can’t even wrap my head around it. I understand the reasoning and the thought process...basically like a grant or tax cut. But I can’t follow the logic, I would have thought a 0% fixed would have been healthier for the greater good.
 
UTfball68 said:
I honestly can’t even wrap my head around it. I understand the reasoning and the thought process...basically like a grant or tax cut. But I can’t follow the logic, I would have thought a 0% fixed would have been healthier for the greater good.
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You're thinking about it from the wrong perspective. Think about it from the current owner of the dollars: I've got shitloads of money now, or access to shitloads because the fed rate is very very low. I've got more money than can be reasonably convert into value added industry. I want dollars in the future, and paying more than face value for them now is actually cheaper than paying the market rate in the future.
 
Falko said:
You're thinking about it from the wrong perspective. Think about it from the current owner of the dollars: I've got shitloads of money now, or access to shitloads because the fed rate is very very low. I've got more money than can be reasonably convert into value added industry. I want dollars in the future, and paying more than face value for them now is actually cheaper than paying the market rate in the future.
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I get it...loosening the purse strings, spend money to make money. What I can’t grasp is the logic/math behind justifying saying a -.28% adjustable rate will help more than a 0% fixed. Maybe it’s the scope of scale, and I’m thinking independent transactions vs country wide. I know personally/professionally...if I’m presented with a 0% fixed or a -.28% adjustable, depending on length of the loan...I’m probably opting for the 0%...and in the event I did opt for the -.28%, I’d be refinancing later. Only way I see it making sense from a financial institution perspective is if it’s being force fed to stop the bleeding as part of a longer term recovery plan, but I’d still have to see the math...or they’re hedging their bets on capitalizing on the future adjustable rate.
 
How is a negative interest rate not them paying you to borrow money?
How is that profitable to the lender?
 
WARRIORWELDING said:
How is a negative interest rate not them paying you to borrow money?
How is that profitable to the lender?
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The lender is paying you to borrow money.

Most are shorter term loans.

I read it as an investment by the lenders in the economy as a whole. They would rather lose little by negative rates than to lose entire loans by people who can’t repay at a higher rate.

Lessen # of foreclosures and loans going bad vs paying on negative rates.
 
Mac5005 said:
The lender is paying you to borrow money.

Most are shorter term loans.

I read it as an investment by the lenders in the economy as a whole. They would rather lose little by negative rates than to lose entire loans by people who can’t repay at a higher rate.

Lessen # of foreclosures and loans going bad vs paying on negative rates.
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This makes more sense....I couldn't understand the previous.
Invest for perceived gains from the resulting economic growth stimulated by funding.

Seems to be plausible if proof can be founded on the basis of net profit from the endeavor of business based investing or property value increases.

I am hypothetical in my assumption the loans would have basic stipulations on the end use or intended "investments".
 
WARRIORWELDING said:
How is a negative interest rate not them paying you to borrow money?
How is that profitable to the lender?
Click to expand...

It’s not in the short term...think of it like a tax credit...you buy a $250,000 house...you’re still making a monthly payment. Spit balling numbers here, But instead of paying a $1500/mo payment...maybe it’s $1250 because 1) it’s interest free and 2) they’ve adjusted the $700/yr they’re ‘paying/crediting’ you. Like I said above, I understand why they’re doing it, but for me, $700/yr wouldn’t be worth it for me to spend money on something I may or may not be confident in spending at the risk of that adjustable rate getting ugly fast in an economy on the rocks. But if you tell me you want to give me a loan for 30 years at 0% and I don’t have to worry about the rate ballooning to 8% (or whatever)...I’d be a lot more inclined to do that. And I’d assume that’s the only reason a bank would be on board with a $700/yr credit for 3-5 years...if they think in year 4-6 they’ll be capturing more than what they paid out. But again, to me, if the economy doesn’t straighten out, when that interest balloons, all that business they helped create, they’ll just be repossessing. Feels like a new era sub-prime lending bubble to me.
 
UTfball68 said:
It’s not in the short term...think of it like a tax credit...you buy a $250,000 house...you’re still making a monthly payment. Spit balling numbers here, But instead of paying a $1500/mo payment...maybe it’s $1250 because 1) it’s interest free and 2) they’ve adjusted the $700/yr they’re ‘paying/crediting’ you. Like I said above, I understand why they’re doing it, but for me, $700/yr wouldn’t be worth it for me to spend money on something I may or may not be confident in spending at the risk of that adjustable rate getting ugly fast in an economy on the rocks. But if you tell me you want to give me a loan for 30 years at 0% and I don’t have to worry about the rate ballooning to 8% (or whatever)...I’d be a lot more inclined to do that. And I’d assume that’s the only reason a bank would be on board with a $700/yr credit for 3-5 years...if they think in year 4-6 they’ll be capturing more than what they paid out. But again, to me, if the economy doesn’t straighten out, when that interest balloons, all that business they helped create, they’ll just be repossessing. Feels like a new era sub-prime lending bubble to me.
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Narrowing down to the last line.....
Lending to those who can't afford it anyway?
Like the abused housing finance market a few years back.

So is this spurred by the fact we are out producing what can physically be consumed?

To much of a good thing leading to diminished profits? Quantity flooding a market to make a buck back firing due to saturation and small margins per sale?
 
WARRIORWELDING said:
Narrowing down to the last line.....
Lending to those who can't afford it anyway?
Like the abused housing finance market a few years back.

So is this spurred by the fact we are out producing what can physically be consumed?

To much of a good thing leading to diminished profits? Quantity flooding a market to make a buck back firing due to saturation and small margins per sale?
Click to expand...

Yes to your first part...beyond that, I think consumerism is a symptom of a healthy economy...but economies also have a dynamic equilibrium, and like a pendulum we swing back and forth across that happy medium. There is a sustainable standard deviation from center, and when it’s no longer sustainable, the economy will normalize, ie banks giving away money. Layman’s terms...not everyone should work, sometimes currency gets too strong and eventually money runs out.
 
So then what does an amortization table look like for a negative interest rate loan? They pay you most of the interest up front?
:popcorn:
 
Really not interested in reading the article, just as I have almost nothing to re-fi. I "might" take a 0%, or close, but No to any adjustable. Too Risky! And where did I see the Statement, Beware of 0% loans? It's Not always Really 0! Didn't study that either, just figured someone's found a trick. Then you have Closing cost & other payoff terms. Maybe some or same as Auto Dealers, "Dealers Prep" cost. > 100% profit / scam! And yes, the Salesman Admitted it.
 
The person who wrote this article has absolutely no concept of economics or the economy in general.
They are using the popular term of bond yield inversion, and applying it to shady lending techniques in other parts of the world.
 
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