[SoftTalker]

Instead of the complexity of issuing these bonds, would it not be a lot simpler to just allow borrowers to buy back their mortgage at its current value, which is what any other buyer of that loan would do. Mortgage loans are bought and sold all the time, for their current value. Just allow the original borrower be able to do that.

[s1artibartfast]

Both are forcing the bank to take action, but I think that switching like for like is less of an imposition than a forcing the bank to sell.

It is interesting that banks dont already offer this for a fee. Im not too knowledgeable on the topic, but wonder if it has do with how mortgages are bundled, and the cost/paperwork of unwinding that.

[fshbbdssbbgdd]

The fact that someone who needs to sell will pay back the principal is valuable to the bank. If a bank starts offering the option to get out of the loan at a lower price, it would impair the value of that loan. The only way to make this happen would be to include it in the original terms of the loan (where this feature would be worked into the market math that sets the interest rate) or if the government changes the rules (which would result in a hole in balance sheets as the value of the debt falls).

[s1artibartfast]

Correct, there is some additional value from the upside that mortgage holders may need pay in full to terminate.

However, this upside should be priced into the Mortgage price on the secondary market as well.

there are other factors as well, like holders of mortgages may care about much more than their market value. They are balancing time returns, risks, and their portfolio of investments.

[munch117]

How would the current value be determined? The lender has no incentive to offer you a competitive price, when your alternative is to pay the loan in full.

The point of the Danish system is that it's a market system through and through. No one needs to twist the arms of lenders to make them "allow" something.

[SoftTalker]

There is a straightforward way to value a mortgage loan because they are bought and sold every day.

The value calculation might have to change, as noted by fshbbdssbbgdd, but it's possible, since the Danish system calculates a value on the bonds that represent the mortgage. To me it seems like less overhead to forego the step of issuing the bonds and just make the mortgage work like the bonds would.

[munch117]

I'll admit that I'm in well over my head here. I'm no banker, and I've never had a realkredit loan myself. But here goes.

I believe the difference is that mortgages are tied to the individual property, and thus individually priced, whereas building bonds are part of an emission series. That means there's a liquid market, where all you have to do to pay back the loan is buy your bond type, not the particular bond for your property.

And that makes it different from a mortgage that is a contract between a single lender and a single borrower. There, you are stuck doing business with whomever owns the contract, and they can use that against you when negotiating the price.

[SoftTalker]

I'm not that experienced with it either, but a mortgage loan is just a secured loan. The primary value driver is that it's a stream of payments for a defined period of time, probably boosted by the fact that it's secured but also reduced by the fact that it can be paid off at any time. I'm sure there's more to it than that, but fundamentally it's just a debt that can be bought and sold for something close to its net present value of its future cash flows, like any other bond or debt.