As you well know, if you read this blog, the saga of our endless search for a home continues. And that means I spend a lot of time reading the newspaper about the state of the housing market. And right now the Swedish central bank, the International Monetary Fund, and the EU central bank are all fighting with the Swedish government because, it the government thinks it is soooo stupid to pay back your damn mortgage.
At least that is what all of the finance experts in Sweden have to say. Would you be surprised to find that all of the finance experts are employed by the banks?
OK the theory is this: It is silly to pay off your mortgage, ever. Better to invest that money in something else. The bank will get its money back when the house is sold. You pay interest on the loan. Everyone is happy. Because, as we well know well, housing prices only go up.
Lately there has been a change in tune, and the government is ‘encouraging’ the banks to ‘encourage’ their customers to amortize 25% of their mortgages. That is correct. Over the life of the loan, you are expected to only pay back 25%. That means, if you actually made a full downpayment of 15%, you are only amortizing on 10% of the actual cost of your house (yes, this does mean that housing costs are crazily inflated to reflect this fact).
Most of the Swedish central bank employees are all like ‘We shouldn’t FORCE people to pay back their mortgages, because sometimes people fall on hard times and if we force them it would not be good for the economy’
Yes, the banks are saying it is silly to expect people to pay back loans on a monthly basis.
We went to one meeting with the bank that is starting to encourage 60 year amortization and was told ‘don’t worry, probably when you get to 50% we can talk about stopping amortization’ and I was all ‘you Swedes are crazy!’ I mentioned a 30 year payment plan at our first mortgage meeting with one bank. Let’s just say that subject won’t come up again.
The good news: The good news is that due to the crazy structure, you can amortize at an accelerated rate without any penalty. At least that is what they say.
The bad news is: Seriously, no one is paying back their loans.
So is Sweden the only country that loans out hundreds of thousands of dollars and does not expect repayment until the house is sold? I have read that Finland has 30 year loans, and I know even crisis country Spain does as well.
Are there other regions where they think ‘amortize smamortize?’
Because everyone seems to look at home equity like it is something that should be used long before you die, they keep giving these huge mortgages to people in their 60s, and I am left, once again, mind boggled and rather terrified by the whole thing.