(edit title) Paying down mortgages in Sweden Why don't Swedes bother? Options

[Westport]

I'm wondering if anyone can enlighten me as to why mortgage holders in Sweden do not seem concerned about reducing the principal on the borrowed amount? I know many well educated, well paid Swedes who would have the financial ability to pay off their mortgages prior to retirement but have no inclination to do so. Is it because the tax treatment of mortgage payments is so beneficial that it is counterproductive to pay off your mortgage?
It seems that people often intend to pay interest only on their mortgages until retirement, then downsize and use the capital appreciation to pay for the retirement home. This seems a crazy situation to me, but when you hear of people with 100 year mortgages and the like there must be some rational explanation.
This approach can only work in a very low interest rate environment can it not?
I'd be very interested to hear from those that hold mortgages in Sweden that have worked this issue out themselves?

[Abe L]

It seems like a crazy situation to every non-Swede. But it's rule rather then exception in Sweden.

Banks encourage this, they make you cough up 15% of the purchase value but after that you're fine with just paying interest. Interestingly it's not the standard for Scandinavia either, this is really a Swedish thing. I never figured out where it comes from, but with the crazy rules and restrictions that come with purchasing an apartment as well it almost seems like fully owning property is frowned upon.

One of the reasons that it somewhat works is probably because for example in Stockholm there is a virtually 100% guarantee that your property will increase in value. In the more rural areas the house prices are so low, usually causing people to build new rather then buy old, making full ownership very uninteresting. If you can sell the property for the minimal price of the downpayment with neglectable interest payments, it could leave you a lot of money for other things.

[djmarko]

well i guess the 30% tax relief has a lot to do with it, if you have an expensive mortgage, rest assured, you will receive a huge paycheck by midsummer to help with the brandy schnapps!!! just kidding! if you pay off your mortgage, you pay more taxes

[PDX]

You have to look at inflation and the interest rate as well as the appreciation rate of the value of the property.

If your income increase each year (i.e. inflation) is higher than the interest rate and you can additionally expect the property value to stay the same or increase, then you only gain on making minimal payments on the mortgage. Given where the interest rates adjusted for inflation (i.e. real, not nominal rates) have been in recent years, it is hard to justify making any mortgage payments at all (that reduce the mortgage amount).

~~~PDX~~~

[Kibiri]

I have the money to pay back at least half of my mortgage, but instead I fixed my mortgage and I am investing the money in stocks/funds etc. My debt is not very high, so I feel comfortable with it. If I think it is too risky, I can put some of the money into a 1-2 year interest account, because the interest I can get from some of the small banks at the moment, is no less than my mortgage rate.

I don't think my apartment will sell significantly higher than what I bought, but still currently it makes sense to not to pay my mortgage. When my mortgage expires if the floating rates happen to be very high, probably I will pay up.

[Puffin]

Is it a freehold/BRF thing? - that people are in no hurry to pay off an apartment that they will never own as you never own a BRF just a share in the association?

Here in the sticks people seem to pay of their homes but it is mostly freehold villas and farms

So perhaps this is the difference?

[John.Smith]

Yep, I would agree with that. I changed banks recently and moved my mortgage too. Our new bank told us that the norm for where we live was interest only for apartments. We however have a house and the way I figure is that if I pay off my mortgage then regardless of what happens to the economy or if I lose my job etc that if I don't owe anyone anything then I am in a pretty good position. I got burned before in a past life with depreciating property values on an interest only mortgage so I prefer to play it safe

In saying that, it would take a huge shock to the economy here for house prices to fall (I mean totally crash) so I guess from a risk perspective paying interest only is not a bad approach so long as you invest the cash you save wisely.

[Abe L]

We however have a house and the way I figure is that if I pay off my mortgage then regardless of what happens to the economy or if I lose my job etc that if I don't owe an ... (show full quote)

We however have a house and the way I figure is that if I pay off my mortgage then regardless of what happens to the economy or if I lose my job etc that if I don't owe anyone anything then I am in a pretty good position. ... (hide full quote)

This is how you'd imagine people would think and act. We've also payed off our house to avoid the scenarios you're mentioning. Afterwards we simply bought the two adjacent neighboring properties, first off to make sure we kept the tax relief from having a mortgage and second to prevent we get any unwanted neighbors. Now we are close to paying off the second one, I'm looking at getting a new mortgage for a larger investment which should settle our retirement funds when it's sold off.

[Donut]

I think it is probably a mixture of reasons, including following the crowd and no pressure to repay from the banks (it is perfect for them to reap in the interest, get regular income etc). People must also be replying good state pension as without that it is a bit of a risk to assume value increases and to be able to downsize. In the UK pensioners live on the poverty line, so not having your mortgage paid is not an option!

I agree that if you think you can make more money by investing elsewhere (stockmarket etc), then use the money to do that and don't pay back the mortgage.

But any idea that by not repaying the loan you somehow save money or pay less tax is nonsense. OK, you lose the 30% tax rebate, but on the other hand you would save on paying interest that can amount the value of your home several times over! Then apart from the interest saving, there is then what you can do with your cash once the ball and chain of your mortgage is paid.

[David S]

Can someone briefly explain the tax relief available in a (villa) mortgage? We're currently buying and evaluating our choices of full mortgage (interest only loan), no mortgage, or a partial mortgage.

[Streja]

I have no idea what you're on about. We have paid about 20% of the original price for our flat. That's pretty much, especially if I tell you that we bought it two years ago.

First we had to pay to get the flat, it was a new-build, then we had to fork out 10% for the mortgage, and then we paid off the top loan some months ago.
Right now we're not paying any off monthly, but don't you think people are already doing that? Especially now when yo9u have to fork out 15% of the mortgage?

Talk about trying to make it difficult for young people/people in their 30's to get a place to live! There are no rentals and if you want to buy you have to be wealthy, have wealthy parents or borrow money somewhere else more expensively.

[David S]

Talk about trying to make it difficult for young people/people in their 30's to get a place to live! There are no rentals and if you want to buy you have to be wealthy ... (show full quote)

Talk about trying to make it difficult for young people/people in their 30's to get a place to live! There are no rentals and if you want to buy you have to be wealthy, have wealthy parents or borrow money somewhere else more expensively. ... (hide full quote)

Yes it's crazy. Our apartment is perfect for a young couple with a child, but we're having difficulty finding a buyer. People are interested, say they're going to talk to their bank, then they disappear.

So we've listed it for rent, furnished, for a reasonable bit more than what paying off an interest only mortgage (including an extra loan for deposit) would cost - and within hours I've got multiple young couples wanting to rent it off us long-term.

So they can clearly afford to pay for a mortgage but they can't get the financing, and are having to do the andrahandskontrakt roundabout every year or two.

Maybe the banks all own removalist companies?

Of course we'd like to keep the apartment as an investment property and rent it out long-term, but that's not an option here in Sweden.

[dave.smith]

I just paid 100% - houses are dirt cheap compared to the UK unless you want to buy or rent directly in a major town centre.

[John.Smith]

Can someone briefly explain the tax relief available in a (villa) mortgage? We're currently buying and evaluating our choices of full mortgage (interest only loan), no mor ... (show full quote)

Can someone briefly explain the tax relief available in a (villa) mortgage? We're currently buying and evaluating our choices of full mortgage (interest only loan), no mortgage, or a partial mortgage. ... (hide full quote)

You can claim 30% of the interest you pay to the bank back every year. This is pretty much done automatically and you should see this on your annual tax return form you get in Spring. I *think* it is subject to a limit of 100.000 kr but your bank can explain it better than I

You can also claim interest relief if you still pay a mortgage in another Eu country. I have another property outside of Sweden and get my 30% on this too. Works out quite well as it is rented and pays for itself and I get a nice check every year which I use to lower the principle on the house.

J.S.

[John.Smith]

PS
I believe Swedbank have a mortgage calculator online.

http://www.swedbank.se/privat/boende-och-b...guide/index.htm