It's always more fun to trade shares than to pay interest

We have chosen to have a variable interest rate on our mortgage. This interest rate is renegotiated every three months based on how the Central Bank of Sweden AKA the Riksbank has chosen to either maintain, raise or lower the policy rate. The next change date is March 1.

Since the Riksbank lowered the key interest rate on February 5 by 25 basis points, our interest cost will decrease starting next month. The result of this is that our interest costs will decrease over the next three months and we will invest this money in the stock market instead. Even if the change is not significantly large, it is still an improvement that will increase our investment opportunities.

AI generated image with Grok

Hopefully easier times await

However I calculate, there is nothing to cushion the blow, but I have to bite the bullet and accept that the outcome for June 2024 will be lower than March 2024, despite the fact that we have reinvested all the dividends we received this year. In addition, the world's most perfect husband reinvests the money he receives each month in one of his private pensions.

Hopefully, Sweden's central bank will make further reductions in the policy rate, which means that instead of paying interest, we can start saving money again. My intention is not to complain. Despite Riksbanken raising the policy rate by 4% since May 3, 2022, we have not had to change our way of life. The consequence for us was that instead of investing money in the stock market, we have instead paid mortgage interest. Many mortgage borrowers have barely had food on the table during these years.

A decrease, albeit small

After 16 interest rate increases of 25 points (0.25%) over almost 2 years, our mortgage bank has decided to lower the interest rate by 5 points (0.05%), despite the fact that Sweden's central bank AKA Riksbanken has not lowered the policy rate.

Even if the cost reduction is negligible, it is always nicer to have a decrease than an increase in one's costs. Several experts believe that Riksbanken will lower the policy rate at the next monetary policy meeting, which will take place on 27 March 2024.

Personally, I don't think a cut in the policy rate will come until the August 20, 2024 meeting at the earliest, but I've been wrong before. The gap between the various experts' forecasts about the position of the policy rate at the turn of the year is large, all between 1.75%-3%.

My ingrained guess was wrong

I have always believed that the stock market declines were mainly due to the strategies and actions of the big banks.

I recently read that it is actually the small savers who depress the stock market when they convert their equity funds into cash. During the period from October 16 to and including October 23, 2023, the Stockholm Stock Exchange fell in value every day.

October 2023 is the month when most Swedish mortgage holders who tied their mortgages 2-5 years ago with a fixed interest rate renegotiated their mortgages. If they have not lived according to a more normal interest rate of 4-5%, the step from 1-1.5% will be very high.

My guess is that part of the explanation for this stock market decline is that a large portion of these mortgage holders sold off their fund holdings to make extra repayments on their mortgages with the renegotiation.

Many homes have an extra resident AKA their mortgage bank

The value development of real estate has meant that the bank's share of our home has decreased in recent years. In combination with amortizations made, our home is mortgaged to 25% of the current market value.

You could say that there are four of us in our household, my husband, our son, me and our mortgage bank. All with a 25% ownership. We could evict the bank entirely by paying off our mortgages but they do much more good in the stock market.

There are very few households whose home is mortgage-free, which in practice means that there are not many who own their home.

Maybe I'm handling this the wrong way 😉

In times of higher interest rates, it can be appealing to increase the amortization or pay off your mortgage in full.

A possible repayment of the loans means an immediate reduced cost as well as the coming years, which in turn creates additional room for even more amortization, which further reduces the interest cost, because the interest-on-interest effect works the same in both directions.

Depending on where you are in life determines whether it is beneficial to repay your mortgage. Take my parents, for example, who are low on mortgages. Their mortgage is significantly lower than their equity holdings. My parents are considering paying off their mortgage, which I advise against.

My mother is 75 years old and my father 77 years old. After 60 years, it becomes extremely difficult to be approved for new loans, regardless of how good the ability to repay is. For my parents, paying off the mortgage would make their finances impair instead of improve.

Although it is next to impossible to get my workaholic for a dad to take time off and travel, I still want them to have the opportunity.

Even if it would be to my advantage if they lock up all their money in their properties and don't spend it...

We continue to reduce our indebtedness

This month we made another extra payment on our mortgage. Like last month we paid off $500 on our mortgage.

Every time we make an extra amortization, the bank asks a number of control questions. I fully understand this but wish they could adjust the questions depending on the size of the amount you wish to repay.

Having to verify a sum of 500 dollars feels a bit provocative when hardly a month goes by without it being revealed that some bank has been caught laundering billions for drug cartels or oligarchs.

Assuming our mortgage lender doesn't raise their current 3 month interest rate any further before Wednesday next week we will be able to continue making extra repayments for the next 3 months.

However, we will need to lower the amount to $300 starting next month to not have to increase our budgeted housing costs.

Someone will be right

Tomorrow, Riksbanken will issue its next monetary policy statement.

"The experts" predicts everything from an increase of 50 interest points to this being the last interest rate increase of the year.

I'm guessing that they raise by 50 interest points, which would mean for us personally that our extra amortizations will soon be over if these increases continues every second month throughout 2023.

Then we end up in an interest rate situation that my husband and I personally considered "healthy" when we signed our mortgage many years ago.

The difference between what we considered a "healthy" interest expense and the actual interest expense at the time became the amount of money that made up our monthly savings for many years.

From acorns grow oak trees

The mistaken acquisition of HRZN that my husband made last night means our remaining 2023 dividends increased by $10. No amount that in itself means anything to us financially, but which, together with our other dividends, means a lot in the long run.

We continue to make payments on our mortgage, this month it was $500. Since switching mortgage lenders we have paid off a total of $1800.

Whether we have another month with our current interest rate before Skandiabanken adapts to the recently raised policy interest rate remains to be seen. I don't really know what date they lock in our 3 month interest rate.

Time will tell

For transparency and my own agenda, we have mortgages.

Depending on how the Federal Reserve acts around the policy interest rate, it will affect Riksbanken's actions on February 9.

America's inflation numbers were much better for December than Sweden's so hopefully Fed will be humane in its increase.

If Federal Reserve wants to ensure the decline in inflation and continue to downshift with a 50 basis point, Riksbanken will probably raise the policy interest rate by 0.5% instead of 0.25%.

In such an outcome, our monthly savings will be over and our mortgage interest expense will be $1800.

Our conditions for the mortgage change a few days after the next announcement from Riksbanken. Until then, we will continue to pay back as much as we can at our mortgage.

We are still within budget for our mortgage after the possible 0.5% increase.

In the long term, it always pays to own your home

As we changed mortgage lenders, our apartment was revalued. An appraisal is just a snapshot of the value of a home and really completely uninteresting if it is not followed by a sale. Despite that, it is nice to know that our loan-to-value ratio is not higher than roughly 32% of the current valuation, or just under 51% of the purchase price for the price 10 years ago.

The increased interest & energy prices have already started to affect sales prices negatively. We hope we have the opportunity to buy a studio apartment in the near future that can be used as an office. It doesn't work that we have the office at home because I was brought up not to put anything off, so all time becomes work time.

We are very satisfied

This first month with the new mortgage lender has been completely frictionless. They, Skandiabanken, managed the whole thing with flying colors. This was the third time we changed mortgage lenders in 19 years in total and we are incredibly satisfied so far. With the switch itself last month, we amortized $500 instead of investing it in the stock market. This time we chose to once again repay the loan.

We have 2 months left before the interest rate on our 3-month loan is renegotiated. If Skandiabanken's current 3-month interest rate does not change, we have $200 to either invest or amortize without having to increase our housing costs from March onwards.

The opposite of indecisive

Given the decline in the stock market in recent days, we will most certainly invest the money instead of making an extra amortization this month. But if I know us, we've probably changed our minds several times before Friday, when I make the transfer to either Nordea or Skandiabanken, depending on which decision we've made.

The world's most perfect husband has always found it easy to reassess decisions, even if there have been no significant events. I am very grateful that he has this quality. He is never indecisive, on the contrary. He makes the decision but reevaluates to the end.

Repayment instead of investment

With the change of mortgage lender, we have also changed the terms of the mortgage itself. Despite the Swedish central bank AKA Riksbanken, warnings about another 2-3 smaller increases in the policy rate, we believe, and many with us, that the policy rate will fall in the long term. Because of this, we have chosen variable interest.

This means that the interest rate is fixed in 3-month intervals. When you have variable interest, you can make extra repayments. Our agreement with our new mortgage lender entered into force before the latest policy rate came into effect. This means that our first 3 months have a slightly lower interest than we expected, about $600 per month. How we will do in the future remains to be seen, but this particular month we choose to make an extra amortization on the mortgage. Whether it is the right decision or not, the future will tell.

Mortgage lender

At the end of the month, we change mortgage lenders. The last time we changed lenders was 2 years ago, before that we had the same lender for 17 years. We have previously been very loyal to our bank. For almost 20 years, we had exactly all commitments in that bank.

That's when we discovered that an acquaintance with non-existent commitments at our bank was getting a lower mortgage interest rate than we had when he moved his loans to our bank, even though we had both business and personal accounts, mortgages and securities custody at the bank.

We only have business and private accounts left at that bank today. It is a bit strange that we get a lower mortgage interest rate in a bank in which we hardly have any commitment compared to a bank where we have securities with a higher value than the mortgage.

In debt

People often ask why I don't pay off my mortgage instead of gambling with my future. I don't see it as gambling. I am very aware that I can loose a lot of money on the stock exchange.

Therefore I keep an eye on it every day. I also follow my commandments. On top of this I always make sure that my dividends are at least 2-3 times larger than the loan interest.

If anything alther I am more than willing to sell of everything and pay off my debt. But for the moment I make a lot of money by reinvest my dividends.