Aussie Lender to Create Debt Slaves for Life!

Now I think I’ve seen it all! Check out this story of economic insanity from the Sunday Telegraph – Revealed: The home loan that could save you a fortune.

ING Direct, Australia’s fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.

At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.

“People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach” ING Direct CEO Don Koch said. “There is an urgent need to provide more affordable options and borrowers should be able to choose whether they want to repay the capital, or not.”

Mr Koch wants to position the bank as a “mortgage partner for life”, with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices as they go.

Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death.

Banks already offer interest-only loans, but borrowers often are allowed to keep them only for five to 10 years. Then they must start paying the capital.

But ING says this preoccupation with paying off the loan is unnecessary.

“There is no economic reason for banks to insist on regular capital repayment,” Mr Koch said. “It just makes the loan more expensive for the borrower.

Financial comparison website InfoChoice CEO Shaun Cornelius said the move was a welcome innovation: “Depending on the size of the loan, it could add hundreds of thousands of dollars to a borrower’s cash flow over their lifetime.”

Is it really home ownership if you don’t actually own anything? No one ‘saves’ anything by not paying down mortgages, the money is simply spent (most likely wasted) elsewhere. Moreover, home prices do not perpetually go up.

This type of loan is just opening up a whole can of worms in Australia. Just because we didn’t have a subprime mortgage crisis of our very own, it doesn’t mean we need to create one.

The more I see these type of crazy schemes happening, the more I fear that collapse of the global economy is an inevitability!

Read more from Mish and the The Daily Reckoning-Australia.

Photo by: ~ Pil ~

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8 comments

  1. Hi Mia. It’s a sign of the times 🙂 This sort of thing is another sign that the system isn’t working. Banks (and everyone else) selling increasingly strange or bad products to try to lure in the customers.

    There was an article in the Herald yesterday about the “land trust” model that is coming (from the US) to Sydney. Article here:

    http://www.smh.com.au/business/home-trust-aims-to-halve-the-cost-of-buying-a-sydney-home–buy-the-roof-over-your-head-not-the-land-under-your-feet-20100524-w839.html

    Under this model, a trust owns the land, but you buy the house on it. This sounds even more scary than an interest-only loan!

    Either way, these sorts of ideas are the housing industry equivalent of drilling for oil in deep water and digging up tar sands: it’s going to cause a mess eventually. They will keep prices unrealistically high, reduce people’s security and, when the ponzi scheme inevitably fails, will make a huge economic mess.

    Better to let it fail sooner rather than later.

  2. I thought a ‘land trust’ type system was in place in the ACT already…

    “Development in Canberra has been closely regulated by government,[82][83] both through planning processes and the use of crown lease terms that have tightly limited the use of parcels of land. Land in the ACT is held on 99 year crown leases from the national government, although most leases are now administered by the Territory government.[84] There have been persistent calls for constraints on development to be liberalised.[83]”

    http://en.wikipedia.org/wiki/Canberra

  3. Hi Dixiebelle; I think that what you are referring to is different. My understanding is that the government in Australia doesn’t hand over ownership of land (or perhaps just some land), but “leases” it instead (I don’t think that there is any cost). When you buy the title for the land, you don’t actually own it, but just take over the federal government lease. I may be wrong as the memory is foggy about this stuff.

    The land trust mention in the article are another layer of ownership. The trust buys the property and holds the title for the land. The home owner holds some other sort of title for the building on the land.

    Just more layers of complexity which will one day bring the whole system down …

  4. The silly thing is they’ve even highlighted the big red flag for everyone by quoting “mortgage partner for life”. Seems like one heck of a “lifetime” trap to me. Unfortunately there will be many that fall for it.

    Selina

  5. I leave a response when I appreciate a article on a website or I have something to contribute to the discussion.
    It’s caused by the fire communicated in the article I read. And on this article Aussie Lender to Create Debt Slaves for Life! The Big Picture. I was actually moved enough to post a thought 😉 I actually do have some questions for you if you don’t mind.

    Could it be simply me or does it look like like some of these comments
    come across like left by brain dead folks? 😛 And, if you are
    posting at other social sites, I would like to follow everything fresh you have to
    post. Could you list every one of your community sites like
    your Facebook page, twitter feed, or linkedin profile?

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