Self Extinguishing Mortgages!!! Poof there gone!!!

How to encourage economic growth utilizing negative interest rates…The Answer!!!

                                                                  As the article from the Wall Street Journal “Home Borrowers Collect Interest ” by Charles Duxbury and David Gauthier-Villars, a Danish family are discovering that instead of paying interest on their mortgage they are now being paid interest!                                                   

                                 REAL ESTATE NIRVANA…THE SELF EXTINGUISHING MORTGAGE! 

Negative interest rate policy has been in effect for 4 years now, so other countries have had the opportunity to determine the impact on small ”Test” markets such as Denmark.

During this time the public has  become familiar with the concept, although many are still struggling to comprehend the implications. The most obvious result has been the almost zero percent return on savings.

Now for the U.S. to take the plunge! 

                                U.S. CAN DO IT BIGGER AND BETTER!!! 

This is the perfect time to really implement significant social and economic engineering.   

It is best to go all in, do it dramatically ensuring that there is significant impact. We laugh in the face of -1 or the gradual approach. Let’s just do it…-5% but with a twist! After all what isn’t twisted about this entire situation?

All homeowners will be required to have their mortgage interest rates adjusted to the new -5% !                    

Refinance Scenerio: A refinaced mortgage of $200,000 which currently has a mortgage rate of 3% would now be -5%. An effective change of 8%. In the strange world of negative interest rates the individuals will actually receive a credit, in affect be paid a return to own a mortgage. 

Part of the refinancing conditions would be the removal of the requirement to make any payments towards principal. If the homeowner does, then there is a prepayment fee levied. After all, one should expect the unexpected.

-5% on $200,000 , on a yearly basis would yield a credit of $10,000.

The credit would then be automatically applied to the outstanding mortgage balance, reducing it to $190,000. Each year the mortgage balance would continue to decline.

The self extinguishing mortgage  will have been financially engineered to be paymentless! The homeowner would agree for the bank to apply the credits to the mortgage balance in return for no monthly payments.

                                                                  NIRVANA!!!

The psychological impact of this policy on the homeowner would be enormous. Let’s call this the “Wealth Factor”. Everyone will suddenly feel wealthier, even if they are not. 

People will feel encouraged to undertake home renovations, take vacations, purchase new cars, or recreational vehicles because there is now more disposable income. A great deal of disposable income would be unleashed on the economy!   Mission accomplished! 

The mortgage would still be secured by the house, which would rapidly be viewed as a very desirable, appreciating asset. An asset requiring no  monthly payments!

                                                          This would most likely lead to an enormous real estate bubble, as housing prices react to this new economic policy. 

If we think real estate is expensive in San Francisco, L.A. or New York, just wait!

We still need to think bigger! 

                                             Leave no one behind! 

Why would anyone want or should rent?  Apartments complexes would be converted to condo units and current occupants would automatically qualify for a mortgage with the -5% return/payoff program, effectively eliminating their monthly rental expenses!

Result? UPSIZE!!!  The larger the mortgage, the larger the credit! 

The tax implication for the government would be a financial boom. Property taxes would escalate dramatically providing a huge source of revenue to the government as real estate valuations would sky rocket.

Effect on Banks: Banks with excess reserves will be in the strange position of incurring charges for funds being held . They need to deploy those reserves, but will be incurring loses of 5%. The Cental Bank [Federal Reserve] would credit the banks with say 5.5% to offset Bank costs to implement negative interest rate policy.

Where will this money come from?

Better fire up the printing presses…