my point is that 100% mortgages can be dangerous whereas 35 year loans are not as you have the option to reduce your interest charges by increasing repayments or lodge lump sums
Negative equity is only a significant problem if you intend to sell while in negative equity.
You need to reword this to "he MAY have the option of increasing his repayments IF he can afford it". You seem to be assuming that it will be easy for people to make accelerated payments to wipe out their mortgage quicker as they progress in their career. I'm afraid that's a major assumption to make and will not apply to everyone.i dont see anything wrong with a 35 year loan on the basis that the client cant afford a shorter term. if client is on a variable rate he has the option of increasing his repayments when he can afford it thereby reducing the term
I think the crux of the problem with 100% mortgages is that, if someone is unable to save a 10% deposit for a property, are they really financially responsible enough to make the purchase in the first place?I really don't understand the media hysteria about 100% mortgages.
Negative equity is only a significant problem if you intend to sell while in negative equity.
I really don't understand the media hysteria about 100% mortgages.
Negative equity is only a significant problem if you intend to sell while in negative equity.
Ability to repay is far more important.
Example: Person A earns €1,000,000 per year. They buy a house for €500,000, using a 100% mortgage (for whatever reason they use a 100% mortgage instead of paying cash). This mortgage, despite being 100%, is not a problem for them - €500,000 being only 0.5 times their salary. Other example: Person B earns €25,000 per year. They buy a €500,000 house using only a 50% mortgage, due to receiving the other half in an inheritance. Even though this is only a 50% mortgage, it will cripple them as interest rates rise - €250,000 being 10 times their salary.
The percentage is irrelevant in each case - the Person A can easily afford to cover a bit of negative equity if they decide to sell. Person B would need to see prices plummet by over 50% for negative equity to be an issue, and yet person B is in far more dangerous territory than person A.
The banks have been quite clever in spreading the risk though. The popularity of mortgage backed securities means that a pension or insurance company is just as likely to get hit badly if their are a large amount of defaults.negative equity is a banking problem. they find themselves in a position where if an owner defaults, they cant get their money back.
The media should realise that 100% mortgages form only a small percentage of mortgages in this country - 30% of new mortgages in 2005 (the year 100% mortgages became widely available) dropping to 24% in 2006. I would wager that 100% mortgages account for less than 5% of all outstanding mortgages in this country. This is not the massive problem the media have been making out.
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