Factors that lead to mortgage foreclosures

mortgage foreclosures

A mortgage is a loan taken to purchase a house or any other form of real estate property. It is given by private lenders or commercial banks who charge interest on the total amount they give out. The interest charged is referred to as the cost of the loan or the cost of borrowing. The borrower must pay back the amount in monthly installments and interest over the decided time frame. However, the problem comes when the borrower cannot pay the monthly installments due to their limited income. In this case, the lender has the right to take over the property and sell it to the highest bidder at an auction. This process is called a mortgage foreclosure which creates problems for both the lenders and the borrowers. Here are some of the factors that lead to mortgage foreclosures. Buy properties in Lahore Smart City.

Reverse mortgages

Reverse mortgages are highly advertised on the news and other media outlets to solve income-related problems. A reverse mortgage is a loan only available to people above the age of 62 who have retired. A reverse mortgage uses a part of the borrower’s property as equity and uses it to generate an income stream for them. The equity is then paid to the borrowers in installments or a lump sum like an annuity. However, while this may seem like a great idea, several problems are associated with reverse mortgages.

To begin with, there are very high start-up costs for this mortgage, including the origination fee, the mortgage insurance, the appraisal fees, the title insurance, the attorney’s fees, and the miscellaneous fees. All these costs slowly eat up the equity, and while the borrower remains the house owner, the problems will be faced by their children. The most usual form of a reverse mortgage is the house equity conversion mortgage. In this type of reverse mortgage, the borrower’s children will have to pay back either the rest of the loan or 95% of the value of the house if they want to keep the property. In most cases, the borrower’s children are unable to meet these requirements, and hence the property is put up for mortgage foreclosure.

Longer amortization

Many mortgage companies and private lenders are now extending the time framework of mortgages which can now go up to 40 years. This allows individuals to purchase bigger houses that they can afford simply due to the lower monthly installments. This type of mortgage is only suitable for people in their 20s and not for any other age bracket. The interest rate on such long-term mortgages is also higher than average hence you will be paying more in interest, increasing the cost of borrowing. The borrower will also have less equity in the house, making it more likely for them to leave the property and not pay the installments. That is because the amount they owe will be greater than the money they have invested, giving them less reason to make an effort to pay the installments. Also invest in Blue World City.

Exotic mortgage products

This term refers to new concepts that lenders come up with which are new to the industry. These mortgages attract borrowers who jump in without actually understanding the concept. An example of exotic mortgage products is the interest-only loan which promises to lower payments by 30%. These loans allow borrowers to live in a house by only paying the interest. Another example of exotic mortgage products is the name your payment loans, which allows borrowers to decide how much they want to pay in monthly installments. All these mortgages may favor the borrowers, but they harm them. These rules result in the borrower’s negative equity building, making them more and more dependent on the mortgage. The amount of debt they owe increases with time until a point comes where the debt becomes too much for them to carry, resulting in mortgage foreclosure.


Mortgage foreclosures negatively impact both the lenders and the borrowers; hence they should work together to avoid such circumstances. Invest in Kingdom Valley Islamabad.

Author Bio

Ramza Zahra is a Karachi-based freelance content writer who uses her life experiences and curious nature to research and pen it down and make a living. Currently, she is working with Sigma Properties as an Snr. Content Writer.


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