How to get an interest-free mortgage

3d image of house with graph falling

How do you fancy having the bank pay you to have a mortgage? It is not as silly as it sounds, and is already happening in Europe as interest rates are placed into negative territory.

You may have heard about negative interest rates, where some banks actually charge "savers" a percentage of their electronic bank deposits. In Switzerland, the bank deposit rate is minus 1.25 per cent for wealthy savers.

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Negative interest rates have been adopted by central banks in Japan, Sweden, Denmark, Switzerland and the European Central Bank.

The theory was that by imposing a negative interest rate on banks they would either lend money or lose it.

Central banks hoped this cheap money would be lent to people wanting to start businesses that employ people who would spend their wages into the economy.

Unfortunately, cheap loans have mainly been used to buy real estate the world over, and by listed companies to buy back their shares (some critics claim this has artificially buoyed the markets). Few new jobs have been created.

Now the next natural step has occurred. According to the Netherlands' consumer financial products watchdog, a customer of lender Achmea NV should have been paid when the interest on their mortgage slipped to minus 0.3 per cent. (Yes, you can scratch your head at this point).

The mortgage was in Swiss francs, with a variable rate of 0.7 per cent above the (Swiss Libor) OCR. When the OCR fell below minus 1 per cent in January last year, the customer asked the lender to pay them. The lender refused, saying there would instead be no interest charges on their loan.

The financial watchdog came down on the side of the borrower and ordered Achmea to pay €971 ($1600) in back interest and expenses.

Achmea spokesman Stefan Kloet wouldn't tell Reuters how many of the firm's customers would be affected by the watchdog's decision.

It now seems that when loan rates go into negative territory, not only do savers get hit, so can lenders.

With interest rates in the UK at 0.5 per cent, some commentators fear Britain could be the next stop for negative rates.

There's no hint anything like it will happen in New Zealand. But you can bet our local banks are enjoying access to this cheap money.

As for our official cash rate, there was no surprise when the Reserve Bank kept it at 2.25 per cent last week.

But Governor Graeme Wheeler is walking a tightrope with low economic growth on one side and high house prices on the other.

Nevertheless, with calls for increased economic growth, expect Wheeler to lower the OCR to 1.75 per cent, to match Australia, before spring.

Feel free to squeeze your lender for a better-than-advertised rate on your next home loan.