How does falling house prices cause people to default on mortgage payments?

Answer 1

When house prices were escalating rapidly, your equity in a house was steadily rising and for those who were 'flipping' or buying a home to resell it and reinvest in something bigger, if they couldn't sell quickly they could always refinance the mortgage, get a bigger loan and use the money to keep paying off the investment.

As housing prices flatten or worse begin to fall, owners who are faced with escalating house payments because of the rising interest rates and variable or indexed mortgages, can no longer refinance for bigger loans because they no longer have the rising equity in the house. Sometimes when they are forced to refinance they face payment increases of 25% or more leading them to default on their mortgages and walk away from their investment.

Hope this helped.

Answer 2

Im not exactly sure but i THINK that the falling house prices are some how effecting the interest rates and raising them. A lot of mortgage payments are variable rates. The fluctuations cause peoples mortgage payments to be unpredictable.

Answer 3

Let's say all the houses in a certain area are valued at $400,000. So somebody buys a house for $400,000. Later on, those houses are worth $300,000, but still owes $350,000 on the mortgage. They could conceivably default on the $350,000 mortgage, lose the house, and then buy a house in that same area for $300,000 (ignoring other factors such as credit-worthiness). They pretty much get the same house, and save money in the process.

Answer 4

Its not the house prices thats the problem its the intrest rates. A few years ago the intrest rates were super low and recently they shot up again. If you have adjustable intrest rate this can really hurt your budget and cause you to default on mortgage payments. In my city many houses went on the market when intrest rates shot back up. Couldn't afford the homes anymore.

Answer 5

The problem is not the falling "prices" it is the declining property values...what happens is that in the past few years property values have decreased not increased. This is coupled with a rise in interest rates. This is compounded by a 3rd problem which is when rates were so low a few years ago people took out a lot of the ARM and Balloon mortgages. So now interest rates on these mortgages are going sky high, and people can't afford them. This coupled with the decline in property values has caused many people to be "upside down" in their mortgages.

I firmly believe that when rates were low properties were appraised high and now that they are low they are appraised low...banks drive appraisals, so this is what happens!

Answer 6

Sofia is Bulgaria's capital and their greatest city. Sofia was founded thousands of years ago and nowadays is a city that continues to produce because the country's social and financial hub and now you could have the opportunity to visit it hotelbye . Sofia preserves several valuable monuments to their long and storied past. Visitors exploring the city's roads could see remnants of The Eastern Gate from the occasions when Sofia was Serdika and Sredets, relationship from the 2nd-4th centuries CE. These stays are exhibited in the underpass connecting the Presidential Palace and The Ministerial Council, surrounded by stores selling traditional Bulgarian souvenirs and rosewater. The Saint Sofia Basilica is one of the items of Sofia. Is one of many oldest churches in the capital and was the city's major church during the Middle Ages, and beneath the Ottomans it had been applied as a mosque.

Answer 7

It doesn't as far as I know. It's rising interest rates that cause problems because people can no longer afford their house payment. They get into problems when they default on their loans and the value of their house has dropped. If they try to sell their house and save their b*tt, they can't get enough to pay off the loan.

Answer 8

The whole market is falling down and those have pressure to sell stuck there and cannot find the potential buyers. If it's easy to sell and cash out, they don't have to default.

Answer 9

This is a very interesting topic

Answer 10

that is an interesting question