Your house is an asset…but don’t think for a second that it’s yours. The truth is, it’s an asset of the banking system.

You, as the mortgage holder, sign up for the mortgage, but the asset belongs to the bank while you pay them their cashflow.

Let’s take a look at the word “mortgage” to get an idea of what it entails for the borrower. In Latin, “mortgage” translates to mean “death contract”.

Sounds sinister right?

It’s all about what works for the banking system. It’s in the bank’s best interest to get more people connected and signed up to the system…and add more assets to that system. And the best way to do that is to encourage more people to take out mortgages.

Matter of interest

People with mortgages have been subjected to interest rate rises recently. Right now, you may be looking at ways to pay less interest than 3%. But when you think about it, it’s 2022 and if you have a debt with 3% interest, that’s actually less than inflation.

Say you have a $1 million debt, in theory you’ve got to go out and earn a million dollars to pay down that debt.

But if you had $1 million in your account and a $1 million dollar loan, you’re essentially conceding that you can’t earn a better return than 3%.

If you had to earn $1 million dollars to pay down $1 million dollars in debt, you actually have to earn more like $1.5 million, so you can pay your taxes and then pay off that debt. It’s a game that’s rigged to trap a lot of people in a system where they are paying the bank’s cashflow rather than earning their own cashflow.

What would a bank do?

Most people with mortgages are out their looking at how they can save cashflow…ie by spending less on interest. But they’re not looking at how to create more assets…assets that might actually earn them a positive cashflow.

Meanwhile, banks aren’t trying to save themselves money, they are looking to create more cashflow by signing more people up to mortgages and expanding their own asset bases. They’re getting more people to sign up for larger mortgage amounts too, to get more return in interest. Essentially, in the banking system, your house has become a derivative.

Banks need people to enter their system and that’s why they incentivise them. 

Middle managers

Look at first home buyer grants. Currently, you can get around $50,000 in grants to buy your first property. And the stimulus packages from the government incentivise more people to get back into the banking system. Essentially, governments act as the middle managers, allowing the banks to collect more debt and earn more income for those assets.

What happens to the property market?

We keep hearing property prices are falling. We hear that the property market’s about to explode, and that house prices will crash by 20, 30 or 40%. So will they?

Think of it this way. If something like that was to happen, it’s not just house prices that would crash. If house prices came back 20%, think of how many loans were established for property transactions in the last 3 or 4 years. A 20% market plunge would suddenly mean that the banks had way more skin in the game. They would have more risk in every deal and the whole system would be at risk of imploding. Don’t hold your breath for that to happen.