How does the housing market work in countries with negative interest rates, I am assuming the home loan rates are very very low so does that lead to a boom in house prices?
Yes, the loan rates are on a historical low, but have been already for a few years now.
Like, salaries do not seem to have similarly risen, so who the hell is buying these houses?
People and institutions looking for a way to 'park' their funds in a safe investment.
Interest on saving accounts is < 1%, loans are cheap, so everybody's trying to buy houses right now. House prices are rocketing up.
There will be lots of tears and people will lose their home once this starts to change and the fixed rates run out on some of those very cheap loans.
I think I'm confused. I have zero experience with Germany, so please be graceful with what may be a stupid question.
So you're saying the super low rate is only for a set period of time, and will change at some point in the future, correct? If the rate is set to change at some point, you can't really call it a fixed rate, can you? I thought fixed rate meant that it was just that rate for the life of the loan. Hence, fixed versus variable.
What am I missing?
The lower x is, the lower the interest you pay during those years.
For example, banks can offer the following loans: - 20 year fixed rate at 1.30% - 30 year fixed rate at 1.42%
So there is a possibility to gamble with the interest rates while still having a "fixed" rate.
Ie in Switzerland with their specific mortgages, it can easily go from USD 800 to USD 8000 per month if things go south, with drop in prices matching this development.
So
Floating rate: 0.7%
1 year fixed rate: 0.9%
5 year fixed rate: 1.2%
10 year fixed rate: 1.4%
35 year fixed rate: 1.6%
Fixed rate mortage has fixed percentage for an agreed period of time (fixation duration). Variable rate mortgage is based on current inter-bank market rate (or some other index), e.g. EURIBOR + X %.