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Premier Home Reserve Bank (PHBR)

Premier Home Reserve Bank (PHBR). By Janardan Das Andrews. Part 1: The Idea. A) Current mortgage market ‘status quo’ Problems with the present model B) PHBR model: ‘Premier Home Reserve Bank’ (PHRB) Home ownership in half to two thirds of the time $400-500k saving for each family

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Premier Home Reserve Bank (PHBR)

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  1. Premier Home Reserve Bank (PHBR)

  2. By Janardan Das Andrews

  3. Part 1: The Idea

  4. A) Current mortgage market ‘status quo’ Problems with the present model • B) PHBR model: ‘Premier Home Reserve Bank’ (PHRB) Home ownership in half to two thirds of the time $400-500k saving for each family • C) Benefits to Mortgagors • D) Benefits to Government • E) Small businesses • F) Benefits Overview contents

  5. A) CURRENT MORTGAGE MARKET

  6. The present problem: A standard* home loan represents a) CURRENT Mortgage market

  7. Cash rate costs from 90-110% per home 50-60% of income tied-up 23-30 year loan commitment period A) Current MORTGAGE MARKET:Disadvantages

  8. A) CURRENT MORTGAGE MARKET:PAYMENT SCHEDULE $500K @ 6% over 23 years

  9. B) ‘PHBR’ PROPOSED MODEL

  10. B) PHRB MODEL: CALCULATING A mortgage

  11. B) PHRB MODEL: A) PRINCIPAL

  12. The Target Inflation Rate is the individual interest rate an applicant receives based on an ‘averaged’ inflation rate For example, if the applicant seeks a loan for 15 years, their rate will equal the ‘mean’ inflation for the preceding 15 years B) PHRB MODEL : 2) WHAT IS T.I.R?

  13. B) PHRB MODEL:EXAMPLE OF T.I.R calculation, preceding 15 YEARs (1999-2013).(1)

  14. b) PHRB modelphrb lends: Principal @ T.I.R* (E.G. 2.5%)

  15. What happens if the inflationary period averages out less or more than the calculated T.I.R over the 15 years? Question!

  16. For example, in 2014 a $500,000 mortgage had a T.I.R amounting to $600,110 for 15 years If in 2023 actual inflation for proceeding 15 years was 2.75% ($610,759), the difference of $10,649 would be repaid by mortgagor at the standard rate, during a post settlement period Conversely, if the actual rate was 2.25% ($589,576) the mortgagor would receive $10,534 refund from the PHRB B) PHRB MODEL: 3) POST LOAN ADJUSTMENTfinal aMORTISATION CALCULATION

  17. B) PHRB MODEL: PRESERVING CAPITALin this way the capital of the phrb is never diminished or artificially inflated

  18. C) BENEFITS TO MORTGAGORS

  19. b) PHRB model: BENEFITS to mortgagors

  20. B) PHRB MODELPAYMENT SCHEDULE $500K @ 2.5% over 15 years

  21. B) PHBR MODEL VS STATUS Quo*$500,000 MORTGAGE

  22. C) BENEFITS TO MORTGAGORS:POST MORTGAGE INVESTMENT opTIONS

  23. C) POST MORTGAGE OPTIONS: 1) SAVINGS 8 YEARS$3,334 P/M compounded yearly after $500k PHRB repaid

  24. 5% compound interest over 8 years = $336,067 • 5% compound interest over 15 years = $630,126 C) 1) POST MORTGAGE SAVINGS OVER 8-15 YEARS:$3,334 P/MONTH POST LOAN SAVINGS

  25. C) BENEFITS TO MORTGAGORS: PHRB VS STATUS QUO OVER 23 years

  26. D) BENEFITS TO THE GOVERNMENT

  27. Once family home is paid off, income investments in other areas will follow, such as: • Savings • Investments: Business/property investments • Pension funds/Superannuation • Invigorating small Business • Education • This in turn reduces the financial burden on the Government (tax payers) with regards to education, future pensions and social services D) benefits to the government

  28. Pensions and unemployment benefits now represent approximately 35% ($138.1b) of the governmental budget.(1) If this is halved, it would represent substantial government savings and therefore call for further reductions in taxation or advantage ‘Net foreign debt’ management D) BENEFITS TO GOVERNMENT:PENSIONS & UNEMPLOyMENT costs

  29. E) INVIGORATING SMALL BUSINESSES

  30. E) INVIGORATING SMALL BUSINESSES:SMALL BUSINESS SHARE OF LABOUR FORCE

  31. E) INVIGORATING SMALL BUSINESSES:MOST S.B. INCOME IS UNDER $1,300 P/W(3) & MUST BE USED TO SERVICE MORTGAGES

  32. 296,161 small ‘business exits’ (inc. restructuring) of businesses 1 or 1-4 persons ocurred in 2009(4). This represents 93% of ‘business exits’ in the entire labour force(5). 2011 surveys(6) reveal that ‘borrowing costs’ and ‘tight’ credit conditions were the main challenges facing small businesses E) INVIGORATING SMALL BUSINESSES:SMALL BUSINESS SURVIVAL RATES

  33. However, after PHRB loan repayments, many families will be able to redirect 50% of their income to boosting their small businesses 55% of business owners(7) would fall into the category of post PHRB mortgagors able to make business loans with no mortgage debt This gives small businesses a far better chance to survive and/or thrive E) INVIGORATING Small businesses

  34. A better ‘survive-and-thrive rate’ means more small businesses and thus greater employment numbers The small business labour force could arguably then increase from 49% upwards 2-5%, which would then edge an economy close to ‘full employment’ E) Invigorating SMALL BUSINESSES

  35. E) Invigorating SMALL BUSINESSES

  36. Increased savings means lower financial burden on social services, pensions and education (35-40% of governmental budget) Expanded small business growth due to freed up income and lending capacity stimulates economic growth and higher employment figures Stability in the mortgage/building industry via a 2.5% target mortgage rate, helps stabilise inflation throughout the economy F) GOVERNMENTS BENEFITS overview

  37. End of Part 1

  38. Reserve Bank of Australia, Accessed at: http://www.rba.gov.au/inflation/inflation-target.html, December 2013 Budget 2013-2014, Appendix G: Australian Government taxation and spending 2013-2014, Accessed at: http://www.budget.gov.au/2013-14/content/overview/html/overview_44.htm, December 2013. (2) Australian Bureau of Statistics, Labour force 2012-2013, Accessed at: http://www.abs.gov.au, October 2013. (3) Department of Innovation Industry, Science and Research, Key Statistics in Small Business, Commonwealth of Australia, 2011. (4) Ibid, p 15. (5) Ibid. (6) National Australia Bank Small, Medium and Emerging Business Survey, Australia – December Quarter, 2010, NAB, 2011. (7) Department of IISR, as above n 3, p 21. Bibliography

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