Faxts - Life investigates the problems encountered by borrowers who take advantage of lower than normal interest start up mortgages.






Inflation and capital growth have been kind to home owners. House prices have been increasing over recent years making those who bought a few years ago more wealthy due to the increased equity in their asset.

Inflation and rises in home prices have been unkind to those who are still trying to buy a home or pay off almost all of the loan taken out to "get into" the housing market .

Some normal everyday people are attracted to lending products that offer a discount rate of interest for the first year or more of a home mortgage. The lender increases the number of loans that they make and the borrower is able to buy a home earlier than would normally be possible.

Everything works well when the borrower increases earnings in time to cope with the "normal interest" once the "honeymoon" period is over.

Similarly, if the home ( asset ) increases in value the borrower would make an on paper capital gain.

What happens when things go wrong ?

Americans, indeed borrowers in almost every first world country, face huge problems and emotional heartache when income is insufficient to cover the increased interest rate.

Borrowers face more severe difficulty when house prices go down.

One problem is enough to endure but when insufficient income corresponds to deceased home value, the borrower ( usually a family - mum - dad - kids ) suffer dislocation, financial ruin, a decreased standard of life and often relocation to a different community usualy in an emergency "take what you can get" rental market.

Like many things in life, there is no simple solution. One option is to delay buying a home until a higher down payment is possible. Another is to save longer to have a reserve in place to cover the higher interest in years to come. A worse ( less desireable ) option is to not buy at all.

There are advantages to renting a home and there are different advantages to buying a home.

Faxts - Life welcomes your comments and suggestions.