Month: October 2019

Interest-only mortgage a risk? Become a repayment obligation too

by admin

Become a repayment obligation too! With this call, banks want to make customers aware of the risks with an interest-only mortgage. Does this campaign make sense?

Are you a relay bee?

Are you a relay bee?

Redemption obligation; You may have already heard this term, otherwise you will definitely hear about it this fall. The Banking Association has started an awareness campaign about the interest-only mortgage.

Homeowners who know for certain that their interest-only mortgage after the term is affordable are 'repayment obligations'.

Your interest-only mortgage at the end of the term

Your interest-only mortgage at the end of the term

With an interest-only mortgage, there is a residual debt at the end of the term (often after 30 years). Not everyone realizes that an interest-only mortgage must also be repaid after the term.

You can of course sell the property and thus pay off the remaining mortgage. Homeowners who want to continue living in the home have to refinance the remaining debt.

Risk of payment problems

Risk of payment problems

Those who do not take precautions run the risk of payment problems with the new mortgage, namely:

  • The mortgage interest deduction expires after 30 years. Your gross monthly charge becomes net.
  • Notwithstanding a high surplus value, the new mortgage will be tested on your future income. The (lower) income after retirement is already taken into account 10 years before the state pension age.
  • With an extension you are completely dependent on the bank's offer. A higher interest rate or repayment obligation has a direct impact on affordability.

Build in more security

Build in more security

If you want to build in more security for the interest-only mortgage, you can easily do this by paying off or saving during the term. The earlier you start this, the lower the impact of your disposable income. This also requires some discipline.

You can also choose to convert the mortgage (in part) into a form in which structural repayments are made. An additional advantage is that the interest surcharge for interest-only interest is canceled. Calculate here whether this is beneficial for you.

Do you want to redeem or are you happy with redemption?

Do you want to redeem or are you happy with redemption?

1 million households in the Netherlands have interest-only mortgages. Of these, 27,000 have since gained new insight, according to figures from the NVB. Homeowners do not seem to worry about their interest-only mortgage.

This is partly justified. According to Nemorto Bank, only 200,000 households form a risk group. They cannot sufficiently anticipate their interest-only mortgage. For most homeowners, therefore, 'happy with interest-only interest' applies, in particular because of the low monthly charge.

Are you sure you're in the right place? Have your interest-only mortgage checked without obligation.

How many years will it take to pay the public debt?

by admin

When we start talking about figures that exceed billions of euros is normal and it is logical that people begin to lose track of the amounts we are talking about. If I tell you that in April 2014 the Spanish public debt plus the interest we owe amounted to € 1,119,213,000,000 , we will all be clear that we talk about a lot of money but we are not without references to understand how much money it is. As with the distances in space, which are measured for light years, the amounts of the public debt should surely be placed in another measurement framework so that people could understand them better.

The amounts of the public debt should surely be placed in another measurement framework so that people could understand them better

The amounts of the public debt should surely be placed in another measurement framework so that people could understand them better

We have the reference of GDP, but GDP also remains a somewhat abstract frame of reference for most Spaniards.

Thus, for example, in reference to the current average salary of a Spaniard, which is at € 26,027, it would take 43 million years for the Spaniard to be able to repay the debt by paying 100% of his salary to pay it.

If we measure it based on the average salary and the total active population (just over 22 million Spaniards), we would have to if everyone were working, full full employment, and allocated 100% of their salary to pay the public debt, it would take a little less than 2 and a half years to return it . Obviously this option is not viable since we can not be almost two and a half years without eating.

On the other hand, if we only take into account the population currently employed (about 17.5 million people) and that they only devote 10% of their salary to the payment of public debt, we would obtain that after 24 and a half years we would be able to pay the total our debt , that yes, that 10% of the salary destined to pay debt, would be additional to all the taxes that we are already paying now and supposing that the government adjusted the belt and will not generate more additional deficit or debt.

The Default of the We Can Debt

money cash

When a debt is unpayable, one of the options you have is to default and restructure it. At the moment the only Spanish political party that has raised this possibility clearly is Podemos.

Specifically, they propose an audit of the debt (to determine which part is legitimate and which part is not) and then proceed with its restructuring, interest rate renegotiation, periods of lack, maturities, etc.

Here I leave my quick impression regarding the proposal of Podemos:

 Remember that in order to restructure the debt we will have to change the Constitution.

 The debt audit for me personally does not make much sense. If you want to make default what you have to be clear is that part of the debt is really sustainable and payable and that part is not and above all look at you very well under what clauses this debt is issued. Auditing the debt does not make much sense because you will not be able to choose this bond, I pay it and it does not. The debt is a set and you have to face its restructuring as a set, how you start trying to discriminate you go by type of nature of the debt or creditor you are going to end up in a monumental judicial mess. One thing is to restructure the debt that is already a hard process and another is to get into a mess of three pairs of noses that will make you an outcast.

 When you restructure a debt almost more important than the quantum and how is the when. I explain myself, it is not a very good idea to announce in advance that you are going to restructure. It is also not very smart to default without having an accumulated safety backpack and without having a primary fiscal surplus. More than anything because if you do not have a primary fiscal surplus, it means that you have to borrow to pay the salary of officials, pensions and state expenses, if you announce the restructuring of the debt and you have a fiscal deficit, nobody will lend you money and you won't be able to pay payroll. Before doing the restructuring you should shrink the size of public spending something that clashes a bit with the ideology that Podemos has to get us out of the recession.

If you default and have a deficit, the only option you have left to pay payroll and pensions is to have your own currency to be able to print the money you need, although this will cost you to devalue and generate inflation (a discreet way of impoverishing people) .

You have to measure well the implications that a debt restructuring also has to apply. The same bond issue will be in the hands of different creditors, you will not be able to say, I pay this one because I like it, I don't pay it because I like it. One of the direct consequences of a debt restructuring if you have not prepared it well in advance is that you will also have to apply it to the bonds held by the Pension Reserve Fund (now invested almost 100% in bonds Spanish), you are going to take the occasional Spanish bank or insurance company and the money from the occasional saver of our country that has Spanish bonds. You should try to minimize as much as possible the shot you are going to make in the foot.

Saying that you are going to do an audit of the debt and that you are going to restructure it may sound good to many people. It may be an option, but how not to execute it very well and with pinpoint accuracy thinking how and when, minimizing risks and taking into account all the variables the remedy can end up being worse than the solution and end up in total disaster.

And all this without getting into the derivative the implications it can have for private debt, which is the lion of the problem in our country.