You’d think other countries around the globe would learn from our mortgage mistakes (China seems to be), but that doesn’t look to be the case, at least in Australia.
Down in Oz, Dutch bank ING Direct is touting interest-only loans as a great way to get in on the housing boom.
In fact, according to a local publication (h/t Mish), “homebuyers are to be offered never-ending mortgages in a bid to overcome Australia’s affordability crisis.”
Sound familiar? The loans are also adjustable-rate mortgages with no fixed-rate period, which bank on endless home price appreciation.
Pretty awful right, but I suppose not as bad as the option arms we used to sell stateside that required less than the interest-only mortgage payment.
Banks down under already offer interest-only loans, but most convert to fully-amortized payments after five to 10 years, similar to the way they work here in the United States.
But ING seems to think paying down principal is overrated or even unnecessary.
Yep, ING Direct CEO Don Koch said there’s “no economic reason for banks to insist on regular capital repayment,” as it just makes mortgages more expensive for borrowers.
Well, I can think of a few reasons why paying down your mortgage can be helpful from an economic standpoint.
You know, home price declines, negative equity, eventual default and foreclosure, billions in write-downs.
But they seem to have it under control.