Wednesday, June 23, 2010

Home Mortgages Given a Restart

To take out a home mortgage was a commonplace enough event up until the financial crisis of 2007-2008. This was something that many people assumed they could easily do as soon as they had found the property of their dreams. In the past, taking out a mortgage was just a question of selecting a lender, deciding on whether to opt for a fixed-rate or adjustable-rate loan, gaining approval for the size of the loan in question, and signing on the dotted line. The ease with which such home loans could be obtained was taken for granted.

However, after the now notorious bubble (which peaked with unprecedentedly high property prices in 2005-2006) burst, holders of mortgages woke up in their hundreds of thousands to the realization that the sum they owed exceeded the re-sale value of their home. By the end of 2008, it is believed that the numbers in this negative-equity predicament in the US had climbed to over twelve million. The upshot was a sudden retreat from the fray by lenders. No longer would it be quite as easy to apply for borrowing to purchase a home. Sadly for those hoping for their first property, lean times lay ahead. Many commentators on the crisis in mortgage lending blamed speculative borrowing. Home purchasers took on mortgages at low initial repayments, fully intending to refinance when their home's value had climbed by a suitable percentage. When home values instead declined, purchasers were left with borrowing that they could not afford.

In the years since those worst days of the crisis, the good news is that lenders are offering mortgages again, cautiously and sensibly requiring of the borrower full documentation and a deposit in virtually all cases. The louder note of caution being sounded by lenders, not just in the US, but in most nations, means that a return to a healthy home-buying industry is well underway.


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