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House prices in capital cities are telling of how much confidence we have in our world and the economy. In Australia, we give out home loans for 30 year period

House prices in capital cities are telling of how much confidence we have in our world and the economy. In Australia, we give out home loans for 30 year periods. Nearly 100 years ago, it was unthinkable to loan out money for that long (2 world wars fit into a 30 year window). House prices are high because interest rates globally are low and the borrowing period is far into the future. I'm unsure what kind of market force is required to change this and I really hope we don't see 40 or 50 year loans.

quickthrower2 6y ago
I don't think a 30 year loan is really intended to last 30 years. At some point you will refinance, or overpay to get it paid quicker. The longer loan term gives you flexibility to not be forced to pay as much principle, but anyone taking a 30 year loan should have a plan to increase their income or something (or reduce their lifestyle) and knock some chunks out of that. If you can "handle" it, and most people can't, maybe me included - it is logically better to have the money as an effective LOC in an offset than paid off the loan. That gives you more flexibility. (Unless you want to take out other loans, say for a business, then it might work against you). In theory the best loan would be interest only. Assuming you have the discipline to do something better with that money you were going to pay back - and assuming you get as good a rate (which you wont). So in practice NO but if you have discipline and get a good rate, a loan that you are not forced to pay back (other than interest) is a good thing!
- tedk-42 6y ago
  My point is that you can borrow more if the payback duration is longer. More borrowing power means buyers can pay more which fuels the fire of the perceived bubble that we're in now.
jfim 6y ago
There are already mortgages over a century in Sweden [0], and they changed the legal limit to be a maximum of 105 years for mortgages [1]. [0] https://archive.is/b1xWM https://archive.is/b1xWM [1] https://www.thelocal.se/20160324/sweden-limits-mortgage-loans-to-105-years https://www.thelocal.se/20160324/sweden-limits-mortgage-loan...
- tedk-42 6y ago
  Indeed and they were trialing negative interest rates as well since 2016

quickthrower2 6y ago

I don't think a 30 year loan is really intended to last 30 years. At some point you will refinance, or overpay to get it paid quicker. The longer loan term gives you flexibility to not be forced to pay as much principle, but anyone taking a 30 year loan should have a plan to increase their income or something (or reduce their lifestyle) and knock some chunks out of that. If you can "handle" it, and most people can't, maybe me included - it is logically better to have the money as an effective LOC in an offset than paid off the loan. That gives you more flexibility. (Unless you want to take out other loans, say for a business, then it might work against you). In theory the best loan would be interest only. Assuming you have the discipline to do something better with that money you were going to pay back - and assuming you get as good a rate (which you wont). So in practice NO but if you have discipline and get a good rate, a loan that you are not forced to pay back (other than interest) is a good thing!

tedk-42 6y ago
My point is that you can borrow more if the payback duration is longer. More borrowing power means buyers can pay more which fuels the fire of the perceived bubble that we're in now.

jfim 6y ago

There are already mortgages over a century in Sweden [0], and they changed the legal limit to be a maximum of 105 years for mortgages [1]. [0] https://archive.is/b1xWM https://archive.is/b1xWM [1] https://www.thelocal.se/20160324/sweden-limits-mortgage-loans-to-105-years https://www.thelocal.se/20160324/sweden-limits-mortgage-loan...

tedk-42 6y ago
Indeed and they were trialing negative interest rates as well since 2016