Should you pay back your housing loan?

10.03.2013

In Sweden there is a continuing debate about repaying housing loans. The banks do not want people to repay their loans. They want to have them invest their cash in saving’s products like investment funds, shares and deposits. The Swedish central bank has argued that it is better to repay the loans over a reasonable period of twenty or thirty years. The whole discussion is in fact totally crazy for the following reasons: 1. If nobody repaid their loan then banks would never stop growing. That is impossible and reckless because banks are already short of capital in relation to loans. 2. When interest rates go higher many young people with large loans will have problems managing their cash flows. Banks argue that young people will inherit large amounts of money from their elders. Again, just a few lucky ones will inherit large sums of money, and the rest will languish on the streets after the bank has taken over their home when their loan is in default. At least two banks in Sweden are arguing for such a policy here in Stockholm and then the opposite in Finland! The Swedish banks are basically financing investments in risky securities with loans secured by customers’ homes, and that is not right.

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