Are loans good or bad?
I imagine that there is a slightly different attitude to borrowing money. Some refrain from borrowing altogether, some only lend to the house and repay a lot, some may take loans both to buy housing, cars and other consumer goods and there are loans to invest the money.
Different types of loans
Basically, I think there are two different loans. Those with a collateral (eg home loans) and those without collateral (blank loans). Then, blank loans can be divided into many categories. If it is now top loan to house, loan to take the washing machine on installment, sms loan etc.
Bad to borrow money
Based on some own experience and some generalization, I see that many who are older than myself can see loans as something ugly. You prefer not to take a loan because it is outside one’s own assets, not even for the purchase of housing.
If these people take out loans, they will repay relatively quickly and as much as they can to get rid of the debt.
I see it as admirable to have this view on loans but at the same time I am probably a little more practical in my approach.
When is it stupid to borrow money?
Obviously, loans that are for consumption are a really bad decision in my opinion. You borrow money that you will have to pay interest on and also repay the entire amount for or later. At the same time, you have bought a gadget that will probably lose its value over time and may require your time and care depending on what it is. It can be something as expensive as a car for a new phone or something else.
Loans for consumption are usually unsecured loans and the interest rate is usually significantly higher than home loans.
Loans are of course also associated with risk. If you do not pay off your loans and increase the number of loans, it can become a vicious spiral that you will soon find it difficult to get out of.
To sum up, I think all loans that increase your expenses, without giving anything significant back to you, are bad.
In the current situation, the Riksbank and the Swedish Financial Supervisory Authority are working hard for us Swedes to reduce our debt. Home loans are basically something that will increase your expenses. But having somewhere to live I think is a reasonable reason to take out a loan. Of course, you can try to find affordable accommodation to keep down interest and amortization costs.
But if you really want to move to a house or apartment and need to borrow money then I think it’s okay. However, a home has an underlying value (which is also why you get such large loans for buying a home), so hopefully you will at least get back the money for the house when you sell it.
Should I repay?
I sometimes get this question. There is no scientific truth but I do not think that you need to repay all of your home loan. Just look at most companies on the stock exchange. They are leveraged to increase their returns. You can also do that, see the example below. A simple way of thinking is this: I can repay and I do not have to pay interest of about 2% (or lower) on the amount I pay off.
If I do not want to pay off, can I find an investment that can give me more than 2% in return (really 1.3 after the interest deduction)? If you think you can find an investment that gives more than 1.3% then you might have to think again if it is smart to repay. It’s your money, after all.