Hysterical debt slave information from Sweden.

Mish reports that "The average mortgage obligation in Sweden will not be paid back until the borrower hits age 140."

The whole article is very short and worth a read.  In short, people have gotten fooled into borrowing ever larger amounts of money for ever longer time periods in order to buy houses.  These people might not be paying high interest rates but they are still making a large monthly interest payment to their masters who run the banks.  Again, low interest rates trick people into borrowing too much and all of this easy money chases up the prices of houses.  Nobody in Sweden really is a home owner, they are all home debtors.   The housing prices are sky high for what you are getting and there is only one reason for it: a fraudulent money supply whose fractional reserve lending policy allows banks to loan out limitless amounts of money to people who can never pay the loans off.

Like any pyramid scheme, a debt Ponzi has to continue to grow lest it collapse.  What's next for Sweden, 60 year loans? 80 year?  How about 500 year loans?  The problem with this thinking is that there comes an asymptotically diminishing point of returns relating to how the monthly payment is reduced by adding more time to the debt.  In other words, at some point the interest payment, which is a function of the interest rate and NOT a function of how long the loan runs for, begins to be the significant factor in making the monthly payment.

Example:

• A 30 year mortgage of 500k @4% yields a monthly payment of $2387 and a payoff of $859k.
• A 40 year mortgage under the same terms yields a monthly payment of $2090 and a payoff of $1.003 million.
• A 50 year mortgage has monthly of $1928 and total payoff of $1.150 million.
• A 60 year mortgage has monthly of  $1833and total payoff of $1.3mn.
• A 70 year mortgage has monthly of  $1775and total payoff of $1.5mn.
• A 80 year mortgage has monthly of  $1737and total payoff of $1.66mn.
• A 90 year mortgage has monthly of  $1713and total payoff of $1.85mn. 
• A 100 year mortgage has monthly of  $1697and total payoff of $2.03mn.

I could not find a mortgage calculator that would go past 100 but you can see that at just 4% interest that going past 100 years is going to make very little, if any difference in that oh so important monthly payment.  Never mind the fact that you are not building any equity.  So you are nothing but a renter in fact.  The bank is your landlord but, get this, unlike a rental situation, YOU get to pay for all the maintenance and repairs.

Now, at 5% interest for the same 500k loan:

• 30 year = 2684/mo
• 40 year = 2410/mo
• 50 year = 2270
• 60 year = 2193
• 70 year = 2148
• 80 year = 2122
• 90 year = 2106
• 100 year = 2097

Now, at 6% interest for the same 500k loan:

• 30 year = 2997/mo
• 40 year = 2751/mo
• 50 year = 2632
• 60 year = 2570
• 70 year = 2538
• 80 year =2521
• 90 year =2511
• 100 year =2506

In fact, as you move up the interest scale, the total percentage of monthly payment reduction achieved by stretching the loan out endlessly begins to approach zero. In the 4% example, the monthly payment at 100 years is only 70% of that at 30 years.  For 5% interest, the monthly payment delta between 30 year debt slavery and 100 year (lifetime) debt slavery is only 22%.  For 6%, that monthly payment reduction of the 100yr mortgage vs the 30 year one is only 17.5%.

Folks, when interest rates begin to rise, AND THEY WILL, the whole real estate debt Ponzi will come home to roost globally.  A house should not take you more years to pay off than it would to build with your own hands from scratch (plus materials of course).  If it does then guess what: the delta is simply you working for the bank for free.  They never earned that money they loaned you.  They simply conjured the credit from thin air.  Yet because people don't understand the con, they sign up to pay back ridiculously high home loans for ridiculously long periods of time in order to pay interest to a con man who created fake value (credit) from thin air.  It's definitely the new alchemy scam.

Like any scam it will work until it explodes in our faces and then people will wonder how anyone could ever have been so stupid as to fall for it.  When we see interest rates finally bottom and begin to rise then we will know that the end game is upon us.  That process could begin to happen within a couple months. 

Home loan interest rates are based on the 10 year treasury interest rate which is tracked by the TNX ETF. My current model for it is shown below.  In short, the bottom is likely in for interest rates.  TNX has broken out of resistance during 3 of 1 and is now back testing from above.  Because of the way that the world is changing, including the fact that China is now the biggest petroleum importer in the world, one has to wonder what value the petrodollar brings to the table anymore.  If dollars are decreasingly needed by the global petroleum industry then less dollars will need to be kept by foreign nations, thus sending them back home to the US.  If the US is less relevant to the operation of the world than it was before yet it still has all of the expenses of maintaining a ridiculous global empire, confidence will be reduced in the the money of the US. 

Contrary to anything else you hear, rising interest rates are, more than anything else, an indicator of flagging confidence in the issuer of the currency.  People who hold the currency worry that the issuer will participate in more and more debasement of it in order to maintain the status quo.  Thus, in order to lend it out they want higher returns in order to offset the debasement by the government.

Rising interest rates are going to kill housing prices.  People who are in their 500-750k shoebox in CA, NY, NC, and many other coastal locales will be so underwater that they will just walk away.  The resulting defaults will cause credit deflation that the fed will be completely unable to stop.  This is what will eventually collapse the banking system of the US and of the world.  No Ponzi ever ended well and no it won't be different this time.