Mortgage is common in property investment business and it is related to financial circumstances. You see, not all investor can afford an investment property. Thus, they turn to lenders such as banks to borrow money so they can purchase property they want to invest.
It sounds simple but lots of investors are a little scared of mortgage due to its interest rates. However, mortgage can be really helpful if you choose the right one. Thus, it is highly advised to not being rush in choosing the right lenders that offer the best loan contract and credit policies.
About mortgage default in property investment business
Lots of people only focus on the rates when it comes to mortgage. However, there is more than that you should focus on. Before signing loan contract, you need to make sure that you understand every term and condition so you know what you are committed to.
Of course, the possibility of rising interest rates in the future is terrifying for investors and that is one the most common reasons why they are so stressed about it.
It is also important for you to understand about mortgage default just in case something bad happens to your property investment business. You see, sometimes bad things are inevitable. Before it even happens, you need to have exit strategy so you won’t suffer from severe loss. There are various reasons of mortgage default.
The most common reasons is a death in the family. This is unpredictable and inevitable at the same time. Another impact of this situation is financial burden that is carried by the remaining families such as funeral service, burial, cremation, etc. If the person who passed away has partner, the remaining one should move to a single home which cost as well.
Next common reasons of mortgage default is separation or divorce. When a property is owned by couple or spouse, it can cause mortgage default. Finding the right solution for this matter can be tricky. This reason also takes the longest to deal with especially when the separation is on bad term.
The financial burden is hard to decide because both parties usually have their own arguments. Another common reason is unemployment and sickness. When you stop working, it means you don’t have income. It means you won’t be able to fulfil loan repayment.
These situation are also unexpected so that’s why you need to do your best choosing the right loan contract from the start.
There is bad situation in property investment business regarding to mortgage. It is when investor spend their 30% or more of their pre-tax income on property loan repayments. This situation is not good for investors. However, lots of investors apparently have experienced this type of stress. Of course, it doesn’t mean all investors will experience it.
However, investors that borrowed too much to start off are likely to experience this. They tend to be in more unfortunate situation when there is even small rate rise. Mortgage stress is different from cash flow downturn. The situations and the impacts of both are different in various sense.