When debt is an asset

[paxmao]

It may soon change due to inflation, but as of now we live in a crazy world with the Euro - it is called the wonderland of negative interest rates. For those who are not in the loop, it works like this: You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places. He was saying that he wanted a 25 year mortgage because he would like to have the house paid as early as he could. However, my take on this is that given the ridiculous interest rates, I would rather do like Europe or US and have that debt ... forever

[oHnK]

I don't really understand the rules in the United States or Europe regarding buying a house on credit, but why do people prefer to buy a house with a longer mortgage because buying a house with the installment credit that he pays, it will not stop the value of the house he has bought from increasing, meaning that he buys a house with a longer loan with monthly installments it will not stop him from increasing the value of the assets he already owns. The house as a property has a value that always grows every year. Currently, we buy an average house with a value of hundreds of millions Rupiah but in the end of the mortgage the value of the asset will reach billions Rupiah.

[fiulpro]

I don't really understand the rules in the United States or Europe regarding buying a house on credit, but why do people prefer to buy a house with a longer mortgage because buying a house with the installment credit that he pays, it will not stop the value of the house he has bought from increasing, meaning that he buys a house with a longer loan with monthly installments it will not stop him from increasing the value of the assets he already owns. The house as a property has a value that always grows every year. Currently, we buy an average house with a value of hundreds of millions Rupiah but in the end of the mortgage the value of the asset will reach billions Rupiah.

That is indeed an interesting take. I do believe that property serves as a 100% sure set asset that is bound to grow in value over years. Taking a loan for it is positive most of the times. There are companies that do make it all easier and also aid people in the same. I think same might go for cryptocurrencies like bitcoins. I know some people who took loan from a friend or a bank to actually buy some bitcoins and at the end of the day he was not only able to repay it, but he made 10 folds!! But for sure you do need intelligent investment here, this can go the opposite side soon. I do believe that you should not extend it for that long ( 25 years!! ) You might have to give a lot of compound interest that way. But rather, you need to organize yourself, the assets are only worth it if they are not burdening you.

[Ucy]

What's the purpose of the negative interest rate.? Is it deliberate to encourage borrowing and stimulate growth? And who lends the money, government, banks, regular people etc? I assume typical profit oriented lender would lend in anticipation of profit.Or does the lender profit in another way?

[ShowOff]

I'm not thinking of making a loan in this situation. Taking out a bank loan may be a good option for those who have a steady income every month but the ongoing pandemic situation can overwhelm borrowers with interest payment.

Crypto loans may also be a helpful solution, but we need collateral to do so if the amount we want is to build a house. I really haven't thought about making a loan either in crypto or with a bank so far. I'd rather save than pay interest that's hard to agree to.

[ninkdwi]

I didn't really understand and wasn't interested in this negative interest rate at first but after seeing several articles that said that Trump had asked the US Federal Reserve (The Fed) to change interest rates to negative, I was interested in this.
but on closer inspection I think there is no harm in using this method for countries with chronic low inflation making negative interest rates a more attractive option for the central bank to do. Because it can control the strengthening of their currency.
and this is not without basis because to overcome the global financial crisis triggered by the collapse of Lehman Brothers in 2008, many central banks cut interest rates to near zero. A decade later, interest rates remain low in most countries due to weak economic growth.
With little room to cut rates further, several major central banks have taken unconventional policy measures, including negative interest rate policies.
and what I know is that there are several countries that have applied negative interest rates, such as countries in the euro area, Switzerland, Denmark, Sweden and Japan.

[Poker Player]

I would qualify and say that it is not the debt that is a financial asset but the ability to get into debt. The more debt you have, the more difficult it is for a financial institution to give you a loan, and if it does, it will be with worse conditions, such as a higher interest rate. That is why it is always better, if you get into debt, to have a healthy debt-to-equity ratio. If you maintain it, banks will still offer you good conditions if you need to take on more debt.

You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

It would depend. If it's one month, I wouldn't even bother to lend you the money. If it is a year, I would lend it to you because I am sure that inflation will be well over 1%.

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places. He was saying that he wanted a 25 year mortgage because he would like to have the house paid as early as he could. However, my take on this is that given the ridiculous interest rates, I would rather do like Europe or US and have that debt ... forever

It is a personal thing. Personal finance is, just that, personal. If your friend isn't comfortable with debt, it's better to go light on debt. Although it seems financially smarter to go into debt, and in fact, that's what the vast majority of billionaires do.

Your friend may not understand this: Zuckerberg's 1% Mortgage: Why Does a Billionaire Need a Loan?

Or this: Elon Musk, short on cash, keeps borrowing more and more money even as Tesla stock surges

Although getting into debt like this is not for everyone. You have to be financially smart and be careful. The average Joe can go on a liquidity binge if he does experiments like these that can backfire.

[erep]

What's the purpose of the negative interest rate.? Is it deliberate to encourage borrowing and stimulate growth? And who lends the money, government, banks, regular people etc? I assume typical profit oriented lender would lend in anticipation of profit.Or does the lender profit in another way?

Maybe the negative interest rate is applied by the bank to increase loans from customers, but I also have the same opinion if the customer is already actively making negative interest rate loans then how can the bank receive benefits from the loan program.
I'm not interested in making a loan at this time because I don't need big funds to buy a property or a car.

[Kakmakr]

Call me a traditionalist ... but if you want a roof over your head... and you cannot afford it... then you have a choice, namely :

Rent a house : Give money to a landlord (someone else) and never own property.
Borrow the Money : Take out the mortgage and pay the interest and own your own property. (Asset)

I own my house... I paid it off way earlier than what I should have, because I paid much more than what was required from the mortgage payments.  (Best decision I have ever made)  

[terrorJR]

What's the purpose of the negative interest rate.? Is it deliberate to encourage borrowing and stimulate growth? And who lends the money, government, banks, regular people etc? I assume typical profit oriented lender would lend in anticipation of profit.Or does the lender profit in another way?

What I know is that this negative interest rate is a type of interest rate with a percentage below zero per year, which is applied by the central bank with the aim of making commercial banks channel their funds to the public.
and if viewed from here I think one of the goals of creating negative interest rates is to increase economic growth and increase inflation, central banks in the world usually do monetary easing by cutting interest rates. and from the list of countries that have used negative interest rates, Japan is one of the bravest countries because the benchmark interest rate in Japan has been at the level of 0 percent.
There are indeed positive and negative sides to this negative interest rate when viewed from several aspects, one of which when I saw the article there I got a quote from Macquarie in his research which said that central bank policies with negative interest rates and quantitative easing have not been proven to solve the problem. economy, such as inflation and economic growth, although the monetary easing will make the currency cheaper which can help economic growth

[Fortify]

It may soon change due to inflation, but as of now we live in a crazy world with the Euro - it is called the wonderland of negative interest rates. For those who are not in the loop, it works like this: You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places. He was saying that he wanted a 25 year mortgage because he would like to have the house paid as early as he could. However, my take on this is that given the ridiculous interest rates, I would rather do like Europe or US and have that debt ... forever

I think you have this a bit backwards. The banks are charging people to store money in their accounts because central banks want people to spend money and not hoard it like they are waiting for a rainy day. If you borrow money for a mortgage presently, the effect of inflation each year achieves what you describe because the price of your house increases each year more than the inflation rate, causing your original mortgage debt to be worth much less than the value of your house in the future. Banks in Europe are currently only enforcing negative interest rates on holders of large amounts of money and this is not seen by most people. Regardless of that, the banks are likely to bottom out slightly above zero because they will always need to make a profit and will just stop issuing loans in the scenario you suggest - as it makes no sense to them (as you have ignored the interest rate of the loan in your example).

[teosanru]

It may soon change due to inflation, but as of now we live in a crazy world with the Euro - it is called the wonderland of negative interest rates. For those who are not in the loop, it works like this: You lend me 100 euros and I promise to repay you 99 euros. My first question, how much would you like borrow under these conditions?

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places. He was saying that he wanted a 25 year mortgage because he would like to have the house paid as early as he could. However, my take on this is that given the ridiculous interest rates, I would rather do like Europe or US and have that debt ... forever

Sometimes I don't understand how people think, first of all just because fiat is carrying a negative interest rate, taking loans doesn't become attractive, because this means money spent today is less valuable than money spent tomorrow, which means no one would actually like to spend, why would you buy a house if you think tomorrow the same house would be available cheaper as the purchasing power of your money would eventually increase? But however, life isn't purely theoretical, In practicality, such a situation won't last long and banks would ensure they lend only at a floating interest rate so that if tomorrow the interest rates rise again bank can earn money from you once again. Also in such times credit availability is easier because the government wants more and more money to flow in the market to reduce the value of your money. So you will still not be profitable at the end of this whole scenario.

[just_Alice]

I get your friend though. Yes, he might spend more money with a 25 mortgage, as a result, but I would probably do the same. The thing is, that, I personally can’t enjoy anything until I fully own it.

In addition, you never know what will happen to you, right now you have a steady job and good income, but in years things may change with the market, economy, personal/health problems, etc. and the more years you’re in debt - the higher the chances that something can go wrong and you can lose the property.

Thus, the sooner you pay something off - the better.

[sunsilk]

That's what I won't do with what your friend is trying to do.

Just think of it that you'll get to shoulder the payment or mortgage for 25 years. That's too many years even if you can end that early and won't take long for those years, I'll just choose to have my house and save up for near to the selling price and pay the remaining few years after.

It's part of the plan to remove debt as much as you can because it won't let you breath in expenses until you realize that you haven't done.

[Silberman]

What's the purpose of the negative interest rate.? Is it deliberate to encourage borrowing and stimulate growth? And who lends the money, government, banks, regular people etc? I assume typical profit oriented lender would lend in anticipation of profit.Or does the lender profit in another way?

It is basically the way of the banks of saying "we have too much money already and we do not know what to do with it so please do not give us more and if you do then you are going to have to pay for it", basically the contradictory nature of negative interest rates means that not even banks know where to put that money to generate even a dollar of profits for themselves, so they are basically telling you that they do not want your money, as crazy as that may sound, so you need to find a place to invest your money by yourself, which adds money to the stock market and many other markets and try to stimulate growth.

[Rruchi man]

One thing I know is that debt is not always a bad thing as has been portrayed by the society. The right kind of debt has its advantages, of course when used by the right person. I read somewhere that, “net worth and debt are positively correlated: the more debt a household has, the more likely they are to have substantial financial assets.” However, this applies to good debts only. Good debts are assets for example durable investments in a house, a business, or a college degree which in turn make the individual profitable in the long run while on the other hand, bad debts drags the soul of the debtor to the ruins of extreme poverty.

[goaldigger]

Long term loans are good than to have a short term loan, yes the interest might be high if you compute that as a whole but imagine that you can still use your other money to create more source of income that can be a big help to support your monthly amortization, beside long term loans are more affordable.

One benefit of long term loan is that, if you die your house will be paid in full without spending millions of money and this can be good for your family. i have this loan and I’m happy with my decision because I know its cheap and its worth it.

[GeorgeJohn]

I'm not thinking of making a loan in this situation. Taking out a bank loan may be a good option for those who have a steady income every month but the ongoing pandemic situation can overwhelm borrowers with interest payment.

Crypto loans may also be a helpful solution, but we need collateral to do so if the amount we want is to build a house. I really haven't thought about making a loan either in crypto or with a bank so far. I'd rather save than pay interest that's hard to agree to.

Their is no condemnation or discouragement via loan from bank or another source, what is the problem is the method of utilisations of the loan, so from my own opinion its encouraging to obtain loan from any angle or form,but if actually you know exactly or understand the concept or nature of investment you really want to use it to establish, loan is good more especially for a perfect traders who knows how to trade but capital become he or her hindrance and also those investors that purchase bitcoin and hold for period of time via waiting for it bull market before selling, so this set of people always be at advantage of loan if the loan did not work against their motive.

[palle11]

I was speaking with a friend that wants to buy a house, mostly on credit as it is usual in many places.

Which place is that you buy houses on credit? Mortgage is not serving the same purpose as credit, there are conditions, agreement and purpose in mortgage that is different from credit. With mortgage, you have to provide collateral as the mortgage bank will require except you also referring to that as credit if you generalize it as also mortgage.

It is okay to borrow money from either banks to buy or build house and after to make repayment of it.

[fillippone]

What's the purpose of the negative interest rate.? Is it deliberate to encourage borrowing and stimulate growth? And who lends the money, government, banks, regular people etc? I assume typical profit oriented lender would lend in anticipation of profit.Or does the lender profit in another way?

Exactly: negative rates are a punishment for holding your own money in the bank account instead of spending them helping the economy recover (I have actually forgot which crisis should they recover from...). Saving is not a virtue anymore.