100% Mortgages: Gift Or Curse?
The American dream is typically composed of a 9 to 5 high paying job, expensive cars, suburban homes, and luxurious vacations. For young adults who are just trying out in the real world, purchasing a home is deemed as a priority in achieving the American dream. However, buying a home requires tedious paper works, research, mortgage, savings, and fees. To make this excruciating purchase, a little more bearable and enjoyable basic information about home purchase should be defined.
Home mortgage is taking out loan from financial institution to pay off home purchase and often this particular home is used as collateral. Home repossession and foreclosure is done whenever homeowners are delinquent in payments in a specific agreed time frame and acts as a security for banks, credit unions and such. During the peak of house boom, financial institutions used the 100 percent mortgage program to entice buyers because of no deposit need. Other banks and institutions even offer 125% mortgage to provide cash for clients to furnish their newly purchases homes and pay for other fees. However, 100 percent mortgages are not always available in the circulation; it is often seen when house prices are on the rise in a conducive economic environment, but since recession by the mid 2007, institutions remove 100% mortgage option in the market. The financial crisis left many homeowners in a negative equity meaning the value of their home is less than that of their debts. Disadvantages of 100 mortgage program weren’t only shouldered by homeowners but also by lenders as well because foreclosed and repossessed homes are already below their expected value. Some financial experts investing advice would at times discouraged 100 percent mortgages due to its interest rates and fees.100% mortgage tends to have higher rates by 0.5 to 2% than a mortgage with deposit plus maturity period tends to be longer at an average of 30 years. In addition, there are penalty fees for paying the loans before the set maturity and additional proof of security like stocks, saving accounts, etc. are oftentimes necessary.
Unluckily, investors dealing in real estate market during the housing price hike were buying money due to the belief that housing market boom will be sustainable and continue to increase. Regrettably, this was not the case. Today, many housing prices are continually dipping even reaching 50% off the original value. Optimistic investors are taking advantage of this crisis. Many of them are purchasing properties in a low price plus the low interest rates in the bank may be an additional gain on their side.
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