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I just refinanced my 30-year fixed mortgage for 2.5%. The rate is utterly ridiculous now. If we get even a modicum of inflation over the next few years, I will be paying negative real interest rates.

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I was paying 0.6% for the last years ( Euribor mortage ). Some people in North West Europe actually had negative rates already.

What was the term? Was it a floating rate after a lock-in period?

The thing that makes 2.5% so incredible in the US, is that it's the rate for a 30 year fixed mortgage. Get one of those loan today and you'd still be paying 2.5% interest in 2049.

Not sure what lock-in period means. This was a variable/monthly rate. So it could go even lower.

Current 30 year rates in the EU are comparable to the US ones, maybe even lower.

By lock in he is asking if the rate can change. In the USA, the rate is permanent.

> In the USA, the rate is permanent.

Variable rate mortgages exist in the US.

You can get fixed 15 to 30 years mortgage rate in some European countries for less than 1% in some cases and 2% in most cases.

Which countries? I’m curious.

Edit: Denmark apparently!

I'm currently looking at various mortgage options in Belgium, between 1 and 2% for 25 year term. But what makes it even better is that, by law, (variable) mortgage rates can never more than double (in Belgium). Yearly variable mortgage rates can be had for <1%. So that means that even if it doubles in, say, 3 years, it's never more than 1.8/2%. But if interest rates remain low for years to come, I'd still get around 1% in those years (if they don't go any lower than they already are...).

I got another mortgage in the deep of the aftermath of the 2008 crisis (2010/11 or so) and I had the same situation; rates were a bit higher then. I modeled various scenarios and basically a long fixed term mortgage would only be better if rates would double after, IIRC, 3 or 4 years after I got it. Despite my instinct that screamed 'NO' at variable rate mortgages, I got one anyway - and instead of going up, rates went down, significantly (in terms of their effect on monthly payments - I'm now paying more than 10% less per month than I did at the beginning).

Much of this is completely counterintuitive. This was the first time that cold hard reasoning and financial modeling made me direct profit, and it has done so several times since, but I also have to admit that it took me years to overcome the mental blocks and feeling of uneasiness that following through with real money on decisions that are based purely on facts. I know several people who got fixed terms mortgages around the time I got my first one, and they're still happy about it, they prefer the stability - even though they rationally know there is literally no downside to the variable rate one.

All that said, the Euribor-based mortgages mentioned elsewhere where you actually get paid for having a mortgage are no longer available :)

How do negative mortgage rates even work? My brain doesn’t understand that. Does the bank make money on fees or something? -1% mortgage rate and 3% in processing fees?

They work because although they lose money, they don't lose as much money as the alternative.

In other words, if you sit on your money, it might evaporate at a rate of -3%, but if you loan your money, it evaporates at a rate of -1%.

Not at all. The bank is just an intermediary between the central bank and you. There are people in NL/BE/DK who actually get/got money on their mortage, monthly, just like a mortage payment but in reverse.

edit: for example, my mortage was the monthly Euribor-rate + 0.9% margin. Euribor-rate = -0.5, I pay 0.4%. But there are people who managed to get just a 0.5% margin. They pay nothing or get money back.

So.... Is it a stupid time to get a mortgage and buy a house, or a fantastic time?

It’s a great time to refinance mortgage debt you already have. Whether it’s a great time to buy a house depends on the future demand for housing in the local area.

If you pay today’s price for a house in Palo Alto or condo in NYC and those areas fall in popularity, it could easily be a bad call.

Condos in NYC have fallen about 10-20% lately (at least the ones I was looking at) so even with rising rates I doubt it could go underwater once the pandemic is over

It seems quite possible that, depending on the course of the pandemic (short-term) and a related long-term evolution of remote work in finance/tech, that the footprint of highly compensated employment and demand for real estate becomes much more spread out. In a scenario like that, coupled with 8% mortgage rates, I could easily imagine a 50% haircut to high priced real estate.

That’s true. I’m skeptical we will see high rates any time soon though since that will hurt the federal government’s solvency big time. And I think there will always be demand for real estate in trendy cities. But there are definitely scenarios in which the value further decreases.

I'm hoping it's a good time to sell because I just sold mine for 3x what I paid for it 10 years ago. But there could still be a lot of inflation coming up.

Come to Canada. You can get 1.49%.

Mine rate is fixed for 30 years, not just 5 years like Canada.

Where? Web search is showing 3%.

Have you heard of "points"?

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