Debt doesn't need to be repaid - it only needs to be serviced.
Lenders lend money for one reason only - to receive an income stream.
If the debt gets repaid they have to go find somebody else to lend it to. Lenders don't want the debt to be repaid.
That's true Shadow. I also tend to agree that property investors are less susceptible to default after losing a job except when they are negatively geared.
Debt doesn't need to be repaid - it only needs to be serviced.
Lenders lend money for one reason only - to receive an income stream.
If the debt gets repaid they have to go find somebody else to lend it to. Lenders don't want the debt to be repaid.
Your assumption is wrong. If banks didn't want the debt repayed they why do mortgages require it to be repaid? It is obvious from any longterm chart of personal debt, Australian or otherwise, that the total grows and grows. Eventually a point is reached, as we are seeing now, where interest rates have be lowered and lowered. And yet the debt continues to grow. This is called a positive feeback loop and is unsustainable.
Our economic growth is based on debt creation, the runups in house prices were fueled by debt. A lot of Australia's consumption is likewise fueled by credit card and home equity debt. To pay off the debt would mean not taking on anymore debt and cutting spending. That would crash the economy.
There is no escape I am afraid. Our debt based economy will eventually collapse because people will be unable to take on new debt or even service the debt they now have. Interest rates can only go so low after all and the emergency low rates we now have are doing nothing to pull the economy out of the pit. We are in a feedback loop of needing to take on more debt to stimulate the economy but not having the ability to service the debt we need.
They don't. Have you heard of interest only loans?
Even principal and interest loans can be endlessly refinanced to stretch out the repayment term indefinitely, or converted to interest only.
The banks are happier if you don't pay back the principal because they make more money that way.
Remember, banks lend money for the income stream. That is their business model. If you pay it back they need to find somebody else to lend it to.
Your interest only loans have allowed people to take on more debt. These bank profits are just more and more paying Inerest only loans ,you say this is the bank model, the model where more and more money is being funnellled away from the real economy.
People pay interest only these days because that is all they can afford, while this might work for tax purposes provided prices keep rising, its not very smart for your ppor, yet this is rife and never been higher, hence bank profits.
Do you think all these bank profits directing money away from the economy will cause further economic decline and job losses for mortgage holders ?
We have seen wages falling in the US , do you expect wages will fall here too ?
You must think the bank locks the interest repayments up in a vault or something?
Interest repayments go to savers. Bank profits are distributed to employees and shareholders.
The money goes back into the economy.
Wages in Australia, the UK and the USA are falling in real terms. House prices are rising in all three countries.
So how much savings to you think the bank is paying out on compared to loans they are taking interest on ?
And shareholders, how many of the population have CBA shares. This money is just being directed at a small few on the scope of the overall economy.
Prices might have risen a bit lately in the US, but I saw a thread here showing california house prices were cheaper than ten years ago, it was about 20% cheaper than ten years ago.
So you dont think all these bank profits directing more and more money away from the overall economy by having people spend more of their pay for more years paying more debt while it restricts money they could of otherwise spent elsewhere in the overall economy will cause further job losses and ability for people to pay or obtain mortgages going forward.
We see the topic here is wages, you claim wages are falling in real terms, they are falling in nominal terms in the US, do you expect this will happen here also ?
Even principal and interest loans can be endlessly refinanced to stretch out the repayment term indefinitely, or converted to interest only.
The banks are happier if you don't pay back the principal because they make more money that way.
Remember, banks lend money for the income stream. That is their business model. If you pay it back they need to find somebody else to lend it to.
Brilliant, but the point being made is that if it becomes impossible for the borrower to pay back the principal, the bank loses that money.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
Brilliant, but the point being made is that if it becomes impossible for the borrower to pay back the principal, the bank loses that money.
It won't care unless the borrower stops making interest repayments. The bank doesn't actually want the principal to be paid back.
Guest
15 Aug 2014, 10:05 AM
So how much savings to you think the bank is paying out on compared to loans they are taking interest on ?
Enough that people are happy to save money in banks in order to earn the interest.
Quote:
And shareholders, how many of the population have CBA shares.
A lot, especially when you consider superannuation funds, which pretty much everyone has.
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Prices might have risen a bit lately in the US, but I saw a thread here showing california house prices were cheaper than ten years ago, it was about 20% cheaper than ten years ago.
Yes... the USA had a housing bubble which burst eight years ago. Prices have started to recover, despite falling wages, but they haven't yet fully recovered.
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So you dont think all these bank profits directing more and more money away from the overall economy...
Where do you think the interest repayments and profits are going? Does the bank lock them in a vault?
Quote:
you claim wages are falling in real terms, they are falling in nominal terms in the US, do you expect this will happen here also
Yes, definitely sometime in the future, probably within the next few hundred years.
It won't care unless the borrower stops making interest repayments. The bank doesn't actually want the principal to be paid back.
Actually, not true. The sweet spot is around 25% of the principal paid off, that is when the loan is the most profitable. Banks would like people to pay down their mortgage for around 7 years, then switch to interest only. Then the cost of capital vs return on assets would be at optimum profitability.
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