Back in 2016, when the first negative interest rate bonds first emerged, we offered readers with a glimpse of the NIRP future:
After an intense pow-wow between the administration, Congressional leaders and the Federal Reserve, the Negative Mortgage Rate Program (NMRP) is born. The program is simple. Homeowners will be paid to borrow. The Federal Reserve declares that the NMRP is a brilliant extension of NIRP (negative interest rate policy), because it will benefit everyone, not just the 1%ers.
Here’s how it works: No downpayment needed. 100% financing.
No payments needed. This is the reverse of the negative amortization loans during the subprime era. In other words, it is a negative negative amortization, or neg-neg-am loan. The loan balance will decrease instead of increase.
No need for mortgage insurance since, with no payments, there can be no defaults.
No qualifying needed, hence removing the entire cumbersome loan application process.
Your interest cost will be -$1,000 per year. In other words, your loan balance will be $99,000, if you make no payments at all. Using a commonly accepted 30 year term, the loan balance at the end of 30 years would be around $50,000, all without the borrower having to pay a dime in mortgage expense.
Well for Denmark, the future is now, because three years later and with over $15 trillion in negative-yielding debt around the world, Denmark’s third largest bank is now offering borrowers mortgages at a negative interest rate, effectively paying its customers to borrow money for a house purchase.
Jyske Bank said this week that customers would now be able to take out a 10-year fixed-rate mortgage with an interest rate of -0.5%, meaning customers will pay back less than the amount they borrowed, or precisely what we said would happen in our 2016 preview of the dystopian future.
What this means is that if you buy a house for $1 million and pay off your mortgage in full in 10 years, you would pay the bank back only $995,000. No mortgage payments would be due between the purchase and payoff date, so effectively a borrower only has to repay principal… with a small discount, guaranteeing that the bank loses money on the loan.
“It’s another chapter in the history of the mortgage,” Jyske Bank housing economist Mikkel Høegh told Danish TV, according to Copenhagen Post. “A few months ago, we would have said that this would not be possible, but we have been surprised time and time again, and this opens up a new opportunity for homeowners.”
“In practical terms… the negative interest rate will act as a ‘subsidy’ to the repayment. And the repayment portion will become smaller and smaller as the debt is reduced,” explained Høegh.
How is that possible? “Yes, I hardly understand it either. In fact, I said it can’t happen. But we have figured out how to have a negative rate mortgage” explained Høegh.
That said, even with a negative interest rate, banks often charge fees linked to the borrowing, which means homeowners could still pay back more.
As Insider notes, Jyske Bank’s negative rate is the latest in a series of extremely low interest offers from banks to Danish homeowners.
What is even more bizarre however, is that unlike most of its European peers, Danmarks Nationalbanken, Denmark’s central bank, has held its main lending rate positive at 0.05 percent since January 2015, whereas much of Europe and Switzerland have cut their rates in deep negative territory for the past 5 years.
And while negative rates on mortgages are only now becoming available to consumers, they have been available on short-term mortgage bonds in Denmark since May, according to Bloomberg. “It’s never been cheaper to borrow,” Lise Nytoft Bergmann, the chief analyst at Nordea’s home finance unit in Denmark, told Bloomberg.
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So what happens next? This is what we concluded three years ago:
Before you call us nuts, this is actually already reality. The governments of Germany, Switzerland, Japan and others are charging savers for the privilege of lending them money. Why stop there? Let the people enjoy negative interest rates when they buy a house, or a car, or borrow for a college education. In fact, why bother with taxes. Just let the government borrow to operate. The more it borrows, the more it makes.
And here we are, with banks now praising – and paying – debtors, whose loans are automatically repaid, while crushing savers who have to suffer negative interest rates on their deposits.
As such, the next (il)logical step is to take upside down finance to its extreme, and unleash MMT – i.e., helicopter money – on the population, because with a record $246 trillion in global debt outstanding, the only way forward is through a grand reset, one which inevitably involves hyperinflating the debt away. And that – as Bernanke predicted when he explains how to avoid deflation in his famous 2002 speech – will require a literal “helicopter drop” of money. Luckily, with negative rates, money is now worthless so the final lap in the grand race to the bottom of currency devaluation should be relatively quick.