Host Trevor Dale talks about negative interest rate mortgages. It is well known that interest rates and consequently mortgage rates in Canada are historically low.
If I had to guess five years ago where interest rates would have been today I would have guessed that they would have been much higher.
Never would I have imagined that we would be seeing the world’s first NEGATIVE interest rate mortgages.
In Denmark I last read that there was a lender issuing mortgages at -0.5%.
This means that when you get take out a mortgage that you will pay back less than you originally borrowed.
The principle + interest that we traditionally pay is now principle MINUS interest.
The equation changes and things are different.
But what does this mean for mortgages and housing?
This means that people are incentivized to take out the biggest mortgage that they can get because they will pay back less than they borrowed.
This is stimulus. This is encouraging borrowing and likely real estate purchases.
This is great until the buying stops and house prices drop.
Like all things there are benefits and risks. Positive and negative. Pros and cons.
Will we see negative interest rates in Canada? Not in the near future but who knows long term where rates are going.
Interest rates across the world are slowing falling and negative interest rates are a product of that.
While a recession or falling inflation could spur more rate cuts I am optimistic and believe that as humans always do, we evolve and innovate over the long term.
While new technologies make the cost of products cheaper, we are simultaneously becoming more productive.
This is changing the way we measure inflation as many things are getting more expensive while others are getting cheaper.
The take away: keep long term trends in mind and remember that we are in a historically low interest rate environment. See if it makes sense economically and be mindful of the potential risks to mitigate where possible.
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