I power up my Titanium Powerbook at least once a year or so. 23 years old and works just fine. I last opened it July 4, 2023, and there was a software update waiting for me.
In the Danish system, each mortgage is backed by a matching bond. Thus, mortgage holders have two ways to pay off their mortgage: 1) pay the monthly payments or 2) buy the matching bond and, in effect, extinguish the mortgage. The latter option is valuable because when interest rates rise, the price of mortgages fall.
Instead of the complexity of issuing these bonds, would it not be a lot simpler to just allow borrowers to buy back their mortgage at its current value, which is what any other buyer of that loan would do. Mortgage loans are bought and sold all the time, for their current value. Just allow the original borrower be able to do that.
Both are forcing the bank to take action, but I think that switching like for like is less of an imposition than a forcing the bank to sell.
It is interesting that banks dont already offer this for a fee. Im not too knowledgeable on the topic, but wonder if it has do with how mortgages are bundled, and the cost/paperwork of unwinding that.
The fact that someone who needs to sell will pay back the principal is valuable to the bank. If a bank starts offering the option to get out of the loan at a lower price, it would impair the value of that loan. The only way to make this happen would be to include it in the original terms of the loan (where this feature would be worked into the market math that sets the interest rate) or if the government changes the rules (which would result in a hole in balance sheets as the value of the debt falls).
Correct, there is some additional value from the upside that mortgage holders may need pay in full to terminate.
However, this upside should be priced into the Mortgage price on the secondary market as well.
there are other factors as well, like holders of mortgages may care about much more than their market value. They are balancing time returns, risks, and their portfolio of investments.
How would the current value be determined? The lender has no incentive to offer you a competitive price, when your alternative is to pay the loan in full.
The point of the Danish system is that it's a market system through and through. No one needs to twist the arms of lenders to make them "allow" something.
There is a straightforward way to value a mortgage loan because they are bought and sold every day.
The value calculation might have to change, as noted by fshbbdssbbgdd, but it's possible, since the Danish system calculates a value on the bonds that represent the mortgage. To me it seems like less overhead to forego the step of issuing the bonds and just make the mortgage work like the bonds would.
I'll admit that I'm in well over my head here. I'm no banker, and I've never had a realkredit loan myself. But here goes.
I believe the difference is that mortgages are tied to the individual property, and thus individually priced, whereas building bonds are part of an emission series. That means there's a liquid market, where all you have to do to pay back the loan is buy your bond type, not the particular bond for your property.
And that makes it different from a mortgage that is a contract between a single lender and a single borrower. There, you are stuck doing business with whomever owns the contract, and they can use that against you when negotiating the price.
I'm not that experienced with it either, but a mortgage loan is just a secured loan. The primary value driver is that it's a stream of payments for a defined period of time, probably boosted by the fact that it's secured but also reduced by the fact that it can be paid off at any time. I'm sure there's more to it than that, but fundamentally it's just a debt that can be bought and sold for something close to its net present value of its future cash flows, like any other bond or debt.
He means that the price of the bonds backing the mortgage fall.
Since the bonds are fixed interest, when interest rates rise, new bonds at a higher interest rate are more profitable than the old bonds at a lower interest rate. As such the free market price of the old bonds will drop to until the selling-at-a-loss reaches an equilibrium with the expected increased profit from higher interest rates of the new bonds over the lifetime of the bond.
This lets the loan taker buy back their own bonds for less than what they were paid (the loaned amount) when the bonds were issued.
Say a bond was originally worth say $100 and generated $10 of income in time T (10%). If interest rates rise so that $100 will now generate $20 (20%), then the original bond is worth less to a buyer. If we ignore the time delta, that bond would only really be worth $50 ($50 to generate $10 is the same 20%), so it's half as valuable. (The time change would bring it somewhere in between, depending on how long has elapsed).
Here is how I hear it personally;
When interest rates rise, demand for other assets go down, which would include these mortgage bonds; which means it is now cheaper to buy your mortgage out due to reduced demand.
Essentially your mortgage is now dynamically priced, in terms of extinguishing it; by the market.
If so - sounds brilliant actually.
Especially because this would correctly price the change in time value of money changes - without such a system, people are incentivised to pay as slowly as possible when the interest rate on their loan is lower than the central bank rate.
In Denmark, with a realkredit loan. The loan is funded by bonds that investors buy. The realkredit institution manages these loans and makes sure the investors get paid back.
The refinancing part is essentially if the interest rates go up I can ask to pay those higher interest and bit more per month and then my total mortgage debt goes down.
In some cases you can save a lot of money by doing that.
It depends.
Also monthly payment is misleading.
You pay quarterly not monthly.
So its calculated maybe 10.000DKK monthly but you will always pay 30.000DKK quartely.
Don´t know why its always described as monthly in Denmark when no one pays realkredit on a monthly basis.
It could be because the mortgage you can get is based on a monthly salary. But I am just guessing.
No idea.
Its a good system though.
IMHO Denmark is very much a delusional capitalist country with socialist tax rates but this realkredit system is really superb.
Well. First of. Maybe you didn't have the money at that particular time. In Denmark every single mortage has a matching bond.
I'll try to explain it as well as I can.
When you make a mortgage loan you can have either a fixed rate or variable rate. Depending on which you choose the exchange-rate differs. It hovers around 100. When you make a loan you would want that to be 100 or more. For example if the exchange-rate was 101 you would receive 101 kroners for every 100 kroner you loan. A dream scenario. But more realistically it is probably closer to 99.
Mortgages is a boring thing. But extremely interesting when it comes to your own loan. The key to take away here is the following:
When the mortgage rates are high the bonds are less valuable.
When the mortgage rates are low the bonds are more valuable.
Now let's take an example. I take 1.000.000 DKK loan for a house at an exchange-rate of 100.00DKK. Meaning I now owe the mortgage institute 1.000.000 DKK.
The mortgage security bond for my house is still 100.00 DKK at this time. Meaning if I want to payout my loan. I have to pay 100.00 DKK to pay off 100.00DK. But for if the rates are high then the exchange-rate might be 95. In which case I can then go down to the bank and say 'I want out of my loan'. The bank will then say 'Okay. You still owe the mortgage institution 1.000.000 and since the exchange-rate is 95 right now. You then have to pay 950.000 plus some fees'. The bank will then buy the underlying bond for me and handle the rest.
In general we have many options when it comes to mortgages. It all involves refinancing:
* If the rate falls you can do a down conversion. You replace your old loan with a new one with lower rate. You might have to pay more to payout the loan since the exchange-rate will certainly be higher.
* If the rate falls you can do an up conversion. Similar to the example before. But this time you replace the loan. You get a higher rate, but you might "pay off" a significant amount.
And then there is the 'slanted' conversion where you refinance from a fixed mortgage to a variable mortgage. Or vice versa.
In all cases it depends on your situation. How many years are left on the loan. Have your disposable income changed such that you can pay off more in which do you want to change the loean from a 30 year loan to 10 year loean instead.
A few professors in my undergrad econ department have done a lot of actual academic research into this, and, in fact, started the American Association of Wine Economists (https://wine-economics.org) with other economists who are interested in wine worldwide. They have a quarterly peer-reviewed journal, and the articles are genuinely interesting. Sample topics from the latest issue: "Does quality pay off? “Superstar” wines and the uncertain price premium across quality grades" or "Tracking the wines of the Judgment of Paris over time: The case of Stag’s Leap Wine Cellars’ Cabernet Sauvignon"
A few things I've gleaned from them over the years:
1) People definitely come to a wine tasting and think they have to sound smart. There's always someone who thinks they need to say "something-something oaky" to "fit in" because it's something they saw on TV. The point is not to sound like what you think a smart person sounds like, the point is to find a wine you like. Hard to get around it, but that's what a lot of articles like this are basically pointing out. It's not wrong, but it's also kind of missing the point.
2) People have different fundamental taste profiles – just like some people just like Coke instead of Pepsi, and a €100 Pepsi will taste "bad" to someone who's expecting a €100 Coke. But if you like Pepsi – and there is a real reason that bottle of pepsi costs €100 (e.g. materials, aging, process, etc.) – you're really going to like that €100 Pepsi.
3) As a consequence of 1), there are definitely wines that are more "marketing driven," and tap into that insecurity. I know a few people who have been offered thousands of dollars to steam off the label of empty bottles of wine they kept in their cellar for sentimental reasons, so that those labels could be re-glued to a bottle of whatever, so that they could then be trotted out to pump some dude's ego. It's a shame, but that's people.
4) @Antognini is pretty on target here. For the same vintage, if you open it up right away, you can get a very tasty "house" bottle of wine for €15, but you should taste a very significant difference in the €40-€50 of wine from the same maker. The difference is more likely to show up when you cellar it. The €15 bottle might last for about 3-5 years before losing its taste. The €40 will gain complexity and flavor for 10-15 years. A more expensive bottle from a reputable maker should/might/maybe/is supposed to signal that it's been made to last even longer, like 40-50 years.
Fair, but if you're teaching an entry-level undergraduate CS course, you have to to start somewhere, right? Giving them a set of best practices and a clear syntax does that. And then, as students progress, they can be as creative as you suggest.
“Stigler himself named the sociologist Robert K. Merton as the discoverer of "Stigler's law" to show that it follows its own decree, though the phenomenon had previously been noted by others”
"Tim Cook’s triumph as Jobs’ successor has been so unparalleled that the numbers don’t speak for themselves so much as they scream: Apple’s market value has grown by more than $700m a day from when Cook took over in August 2011 to this week when it struck $3tn, before falling back."
I think 1/7th of one day's market appreciation for ten years' work is fair.
