There are many different terms that revolve around the mortgage industry, understanding what they mean can sometimes seem like a minefield, too many mines and not enough information as to know how to cross the minefield to the other side where the information is clearer and easily understood.
A mortgage is a loan on a building, these can be for homes, companies and this includes landlords who rent out properties to those who are for various reasons not able or interested in owning a property of their own. To apply for a mortgage you need to meet certain criteria set out by the lending bank, this can apply to the property and to the personal circumstances of the individual requiring the money.
A mortgage that is paid on time and the owner’s are managing their money and not coming into any difficulty are great, just what the banks want in their customers. But there are times when it isn’t as easy and it is not always through the fault of the person as to the reason that difficulties occur; it could be the loss of a job or family circumstances change. This can mean that the person applying for the loan, or person with a mortgage becomes a higher risk, they are at risk of not paying the money that they owe.
These people were not tended to be lent to in the past, they were too high a risk and would have been refused credit for many different reasons. But a few years ago lenders started to lend money to these people, more than they could afford and sometimes more than the value of the home they purchased.
These were referred to as subprime mortgages, they are high risk and often lumped together and sold on to other banks in the hope that the customers would continue to pay.
Unfortunately, this isn’t always possible and many mortgages defaulted leaving the mortgage companies with property that didn’t cover the amount of debt owed.
This action has been attributed to the financial crisis of 2007, which was felt globally with the collapse of banks and financial institutions around the world. The risks were too high and when loans were defaulted, leaving chaos in its wake.
The financial crisis has collapsed the housing market, reduced the trust in the banking systems and things are still trying to be resolved years later. The question is, has anyone learnt any lessons? This is debatable with the amount of debt world-wide and this is growing, the world seems consumed with buying on credit.
Are there going to be any changes to the mortgages in the future? The mortgage markets are slow to respond to new ideas, and this is true with the caution that needs to be achieved in building the mortgage market back to a strong position. There will not be a return to the quantity of subprime mortgages but as circumstances change so, too, does the risk for the mortgage company in receiving their monthly payments on time.
What the future holds for the mortgage markets is going to be one to watch.