what is all this about mortgages on the news?
I hear all this stuff about mortgages on the news this weekend. What does it all mean? I am not very familiar with mortgages, so please explain it thoroughly. Thanks for your help. (I just don’t like not knowing what they are talking about on the news and was wondering if it would effect any people I know who have mortgages.)
Tags: Mortgages, news, This
People want to buy their own homes and for them to do so they have to get a big loan from the bank. They must make repayments every month. Interest rates have gone up in the past few days which means people must pay extra in their repainment. Say people were paing $1000 a month now they may be paying $1050.
Hi Mom
Many lenders who make loans to borrowers with less-than-perfect credit and low down payments have recently stopped making loans or even closed down.
This makes it difficult for potential buyers to buy property and sellers start to worry that demand will decrease, and therefore home prices will weaken.
That’s the simple answer.
During the housing boom of the last few years, lenders issued mortgages to many buyers who were stretching themselves financially to buy a home. To make it possible for the buyers to make the mortgage payments, the lenders issued adjustable rate mortgages on which the interest rate and monthly payments are very low during the first few years, then increase in future years requiring higher monthly payments on the mortgage. Many speculators bought houses with such loans in the hope of selling them for a higher price.
Now the housing market is in a slump, and a lot of the mortgages are hitting the time when monthly payments are increasing. Home buyers who cannot make the higher payments are having trouble selling their homes and many of the loans are going into default. That means that the banks that issued these mortgages now have to repossess the homes on which payments are not being made.
Mortgages are in the news now because the number of defaults and repossessions is much higher than normal, lenders are in financial difficulty getting study with houses that are not selling, and buyers are losing their homes because they cannot make the monthly payments.
In addition to the answers above, the failure of many “sub-prime” mortgage lenders made the news this week because a lot of their capital came from European Investors, sending some foreign capital markets into a tailspin.