ATM it’s 1.115% for 1M (for 5M it would be 0.899%). That’s just crazy low but I wouldn’t take on 1M margin for real estate unless I had a minimum of 5M at IBKR.
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Yep, margin goes down to 0.75% from 900k upwards. 46m upwards it goes down to 0.5%. And they take the daily SARON, not some artificially constructed interest rate based on the SARON as banks do. As I remember they did adhere to negative interest rates with a minimum rate to pay of 0% (they wouldn’t pay you for borrowing money if I remember correctly).
Now, if you have a really high mortgage and are good for it you can negotiate with the banks too.
What we always forget: most comercial banks have a “license to print money”. They only need a very low margin for the money they lend to you, for them it is just an entry in a book. So actually they keep most of the interest and the margin in addition. Debt creates money and private debt does too…
Now raising the capital requirements for banks rises the margin of the money they can create out of nothing and therefor lowers their gains.
Not always, some didn’t anticipate the possibility of negative rates. They soon learned.
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From April 1st SARON is 0.25% + margin so let’s say 0.7-0.85%. At the same time 10y fixed is at 1.5-1.7%.
How do banks think they will make people choose a fixed right now? They also assume this was the last rate cut but rents are dropping soon and so are other costs so we can get a negative inflation reading in April or May. My guess is we go back to 0 but not negative yet.
Is it unreasonable to expect 1% 10y rates again?
I don’t think that people assume this is the last cut. I think most believe we will get to zero this year. So you might get a 0.8% mortgage if your margin is 0.8%. I guess the question is how long rates will stay low.
On the other hand, long term mortgages have been going up even as rates at the short end came down. You could get <1.5% a few months ago, and now you’re looking more around 1.7%.
Banks don’t need to make people choose fixed or floating. People can choose what best fits them. The banks will make money either way.
People only have two choices
Option 1 -: Take interest rate risk and pay Saron + margin
Option 2 -: Take no interest rate Risk and pay higher fixed interest (this should be seen as a cost for risk aversion)
Risk taking brings benefit because no risk, no gain. In the end over a long term , Option 2 will lose versus option 1 because bank takes the risk and hence they get the benefit.
The question is what matters most to the person, peace of mind or profits. Some people take fixed rates because it’s easy to estimate and plan cash flows.
Only caution I would have is to not overestimate your ability to „guess“ what would happen with interest rates. Reason being you or I obviously don’t know what will happen in future.
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Note: loses on average, but it caps the downsides (eg interests rate going to 3, 4, 5%.
It’s about risk taking.
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And if you don’t know what to do, just slice your mortgage into two or three pieces and do one SARON, one medium term (+/- 5 years) and one long term (10 years) and time them to have the same expiration date. That’s the best you can do if you can’t bear 100% SARON IMHO.
You know, I wondered whether people ever slice up their mortgage into 10 chunks with one expiring each year?
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Instead of getting a higher fix rate, we went for Saron and we’ll just save and monitor the extra saved cash vs. a fixed rate for times when Saron will go up and we’ll use it then if needed. On average we should be better, I’ll report back in 5-10 years.
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Possibly, but that would be the same as taking out a one-year mortgage for the full amount and just renewing it over and over again (or it should in theory be very close to what you described). 
Not really, because if rates jumped 3% after year 1, in the first example, your rates would be locked in, but when you renew in your example, you’d then have to renew at higher rates.
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Yes, but you only win if something unexpected happens that the banks haven’t factored into the rate. You’ll end up paying the higher rate, it may flatten the curve a bit, but you can’t escape it. Moreover, the longer the term, the less “efficient” it is, as the banks’ margin to price in unknown events with interest rate spikes becomes wider.
And then you can’t switch and always have to take whatever rate the bank offers you.
You seem to assume that the margin is 0.45-0.6, I think such low margins are not (anymore) common.
But the longest mortgage term always dictates when you can switch (if the expiration dates align)?
Standard margin is more in the 0.7 - 0.8 range.
I imagine that you rather start all tranches at the same time, so at some point you have to renew while not being in a position to switch.
Where please. My best offer was 0.9 with a 5-years lockup on a SARON. And there seems to be no easy way to get offers to compare, they all want a lot of data and then speak to you, I’m out of country. At the moment I just keep my actual mortgage at 1.05% margin with only one month lockup.
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So with a 0% rate, you get may be 0.75% as lowest interest rate. Which was about the cheapest 10 year fix you could get at the last lows 5 years ago.