Mortgages: Why Sweden limits them to 105 years
Sweden has decided to limit mortgages to a period of 105 years, after finding that it can take people 140 years to clear the debt.
It comes after calling last week to extend mortgages in Ireland for periods of up to 50 years caused consternation.
But some countries prefer ultra-long plans – including Sweden.
The Irish journalist Paul O’Mahony, who is based in Sweden, told Newstalk breakfast that’s how it’s been done.
“There was a study done about a decade ago that showed that at the rate Swedes were paying off their mortgages, it would take them an average of 140 years to clear the debt.
“The financial regulator was keen to deal with this, but was pushed back in the courts – and there was really no political will to do anything about it.
“In reality: a standard mortgage in Sweden is usually around 50 years – although there is now this 105-year limit.”
“The state picks up the tab”
Paul says that a change of government there meant a change in the rules.
“After Sweden got a new social democratic government in 2014, things started to change.
“New mortgage rules were introduced – first in 2016 and then tightened again in 2018.
“So now homeowners have to pay 2% of the mortgage annually if they’ve borrowed more than 70% of the value of the property – or 1% if they’ve borrowed 50 to 70% of the value.”
But what happens if someone dies before the mortgage is paid off?
Paul explains: “If someone dies, an estate is automatically created – which is a legal entity.
“In most cases, if there is a mortgage, the heirs will sell the home at a profit usually and they will pay off the mortgage.
“However, if the deceased’s debts are worth more than the assets, the heirs are not personally liable to repay them.
“The state picks up the tab then”.
But he says most homeowners are encouraged to invest elsewhere.
“I think a lot of this is cultural: there is a strong culture here of investing in the stock market.
“The advice many have received from personal finance experts is that it makes more sense for them to invest in the stock market than in their own property as the long-term return is likely to be greater than paying off their mortgage.
“And the banks have sort of supported it”.