Check out this insanity...
Revealed: The home loan that could save you a fortune
* By Nick Gardner
* From: The Sunday Telegraph
* May 22, 2010 10:29PM
HOMEBUYERS are to be offered never-ending mortgages in a bid to overcome Australia's affordability crisis.
ING Direct, Australia's fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.
At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.
Repayments would be kept to a minimum, allowing borrowers to benefit from capital growth in their property.
"People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach" ING Direct CEO Don Koch said.
"There is an urgent need to provide more affordable options and borrowers should be able to choose whether they want to repay the capital, or not."
Mr Koch wants to position the bank as a "mortgage partner for life", with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices as they go.
Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death.
These loans has been popular for years in the UK and Europe, where repaying capital is seen by many as unnecessary and prohibitively expensive.
"It has worked fantastically in Europe as a way for people to get home ownership and build wealth throughout their lives. It just requires a change in mindset about how you live with debt," Mr Koch said.
"Some won't like carrying a mortgage for so long but, for a lot, this will make home ownership cheaper."
Banks already offer interest-only loans, but borrowers often are allowed to keep them only for five to 10 years. Then they must start paying the capital.
But ING says this preoccupation with paying off the loan is unnecessary.
"There is no economic reason for banks to insist on regular capital repayment," Mr Koch said. "It just makes the loan more expensive for the borrower.
"If this catches on and people carry the same mortgage around for life, instead of switching every five or six years, then the cost of providing mortgages should come down and make them even more affordable."
Financial comparison website InfoChoice CEO Shaun Cornelius said the move was a welcome innovation: "Depending on the size of the loan, it could add hundreds of thousands of dollars to a borrower's cash flow over their lifetime."