Could we see negative mortgage rates? New analysis shows it’s possible

Aly J. Yale
The Mortgage Reports contributor

Going negative

Countries like Denmark, Japan, and Germany are already seeing negative interest rates, but they’ve yet to emerge in the U.S. just yet. Could they? According to a new analysis, negative mortgage rates just may be possible on American soil.

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Are negative mortgage rates on the way?

According to a new analysis from the Urban Institute, negative mortgage rates are, in fact, possible in the U.S. But are they likely? That’s another story.

“In the U.S., rates on U.S. Department of the Treasury securities remain positive, but negative rates are a possibility,” the Institute’s researchers said. “Mortgage rates, however, tend to be higher than rates on sovereign debt because of credit and prepayment risks and costs of servicing.”

Still, it could happen with mortgage rates. The move would require a drop of more than 350 basis points. Though a decrease of this magnitude sounds unthinkable, rates actually dropped nearly that much between 2007 and 2012. Over the five-year period, from a high of 6.7 percent to a low of 3.35 percent.

Negative rates are real — and they might come to the U.S.

What would negative mortgage rates mean?

Negative mortgage rates would essentially mean your loan balance decreases faster than you’re actually paying it down.

As Urban Institute explains, “A negative mortgage rate on a 30-year fixed-rate mortgage does not mean the homeowner receives a payment. Rather, the homeowner still makes a payment each month, but the balance owed decreases by an amount greater than the mortgage payment.”

November 2019 mortgage rates forecast

Currently, mortgage rates in Denmark are around -0.5 percent. Several other countries, including Japan and Germany, have negative nominal interest rates.

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