Crisis makes it possible: interest on investments exceeds interest on loans

Mortgaging a property, investing the loan in a fixed deposit and making a lot of money with it: The crisis and the unprecedented distortions on the financial markets bring incredible curiosities to light. Some banks charge less for real estate loans than other institutions pay for safe deposits.

Real estate loans

Real estate loans

 

The AskMeFinance reported recently on a new phenomenon in the German interest rate landscape: the interest rates for mortgage loans are partly lower than those for fixed deposits, the paper reported, inter alia, citing FMH financial advice. Although this does not apply to interest rates within individual institutions, it is possible when comparing the terms of various banks.

Based on the FMH data, the FAZ calculates that a real estate loan with a term of ten years is already available for 2.39 percent interest a year. At the same time, investors received up to 3.80 per cent interest on fixed-term deposits with a term of ten years.

According to experts, large differences in the banking and insurance markets are likely to be in conflict with economic theory. For example, there are banks and insurers who, due to their mild crisis, are sitting on large amounts of cash and have to invest money in excess. As German government bonds lose almost no interest, real estate loans are granted at very low interest rates. At the same time, other institutions lack liquidity, so that they are collected via high interest rates in the deposit business.

Business model for owners?

Business model for owners?

 

Anyone who wants to take on the role of a bank and wants to earn just that by borrowing and lending money needs an unpolluted property and a bank that participates. The cheapest real estate loans exist only for loans with a lending expiry of up to 60 percent. In order for the money to be firmly invested for ten years, the bank must refrain from earmarking and repayments during its term.

The FAZ calculates that, after deducting taxes, it will be possible to generate interest income of around USD 32,000 in ten years at USD 100,000. The interest cost of the loan and the cost of registering the land charge would add up to $ 24,000 if the investment were denied by one of the cheapest mortgage loans on the market. In ten years, this would yield a net income of around 8,000 usd.

However, this yield is not risk-free. After all, the bank can become insolvent. Especially with institutions based abroad, it is not clear whether compensation could be paid in the event of an extreme crisis in the financial sector.