One of the largest banking groups in Finland, the cooperative banking group, has been stealthy, really stealthy, and they should be stopped… but regulators are just too soft when it comes to customer protection.
For the last couple of years, the bank has been encouraging housing loan borrowers to slow down on their loan repayments so the customers can use the “extra cash” left over for consumption – clothes, cars, holidays, etc…
The temptation to “Eat, Drink and be Merry” sounds great coming from your friendly banker. Many poorly informed customers have done just that, something many of them will end regretting… and here is why.
Banks make a lot of money from ordinary housing loans, especially when most people, Finns included, are careful about always paying debts back on time. In the Nordic countries that is the Protestant mindset, as opposed to the Catholic mindset elsewhere…
Banks make even more money when people repay their loans more slowly. Existing loan customers are normally more creditworthy, so slowing down loan repayments not only increases bank profits, but it also keeps the bank’s risks from increasing.
However, the effect of this policy is detrimental for borrowers, especially when interest rates have been so low for the last 10 years. When interest rates are low, borrowers should even seek to accelerate loan repayments, because when rates increase there is less cash for repayments, and less cash for consumption. When interest rates increase, the pain increases faster in countries like Finland, because income tax levels are relatively high, and disposable income lower.
Owning your own home gives you a warm, secure place to live for you and your family. Finns may have relatively smaller homes, but their homes are well designed and warm – just live in England or in France to see what is on offer there!
Homes bought in Finland and paid for over 25 years also provide you with a nice nest egg for your retirement, when you can downsize, pocket some extra cash, and move to a smaller senior apartment near the shops, healthcare centre and public transport.
Do not forget that banks are there to maximise profits for management, shareholders and members, and that can only occur at the customers’ expense. Never believe that the bank has your best interest at heart, and record all meetings with them on your smart phone. That is what they do with all big corporate clients.