- 31
- Dec
There are various kinds of home loans, two of which are mortgages and remortgages.
Home loans clearly have something to do with a home and what we are referring to when considering mortgages and remortgages are homes that are owner occupied.
To obtain a mortgage or a remortgage the property concerned requires to have sufficient equity.
Equity is the difference between the value of any particular property and the mortgage that is secured on it.
This means that to work out the available equity on a 300,000 property on which there is a mortgage of 180,000 secured, the equity is 120,000.
The Northern Rock Building Society even advanced both mortgages and remortgages at 125% of equity meaning that the home buyer or the remortgage applicant could obtain remortgages and mortgages at 25% more than the property was valued.
The Northern Rock even gave out mortgages and remortgages of 125% of what a property was worth which looking back sounds pretty crazy and verging on the irresponsible.
Now things in the mortgage nd remortgage market are very different and it is impossible to get a 100% mortgage or remortgage.
The 125% is long gone and there are no mortgage lenders left who will even grant a 100% mortgage product meaning that a prospective mortgage or remortgage applicant now requires a deposit.
As a homeowners own money is invested in a property it gives him more impetus to make sure that he can really afford the mortgage payment, as he is not living in a house that in reality is owned by the mortgage lender.
It was too easy for people to borrow more than they could afford to pay back, and if it became impossible to meet the repayments it was too easy to simply walk way and nothing was lost, that is for the borrower ar least.
When borrowing in this way if the homeowner discovered that the property was really too much to repay, it was simply a matter of walking out, closing the door as he had no savings invested in the property.
The availability of 100% and even 125% plans that used to be available partly lead to spates of repossessions as people were not compelled to meet repayments.
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