When we want to buy something with a price that we can’t pay at this moment we tend to look who can lend us the money. It’s a good principle, however don’t take it for granted. These loans aren’t free. Especially during rough times it are these loans that remain a high cost factor in our life. This article is only meant to open your eyes to be cautious when deciding on taking a loan.
Look at the financial crisis of 2008. During the good times bank have the money to spread it around, even to people who probably wont be able to pay it back. When someone wouldn’t be able to pay of their loan the house would be sold. This becomes problematic if it is combined with a housing bubble. When everyone starts selling, somtimes due to foreclosure a lot of houses will flood the market. Low demand and high supply will drop these prices immensely and a lot of people get into trouble.
A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain. – Robert Frost
The quote shows how banks organise their business. At some point they have a lot of money and they will lend it to anyone. However when a crisis or a pandemic hits a lot of people will not be able to pay their rent, their insurance or their mortgage. At that point the prices of houses will collapse, at which point banks will not be able to uphold there current activities. This may even lead to bankruptcy.
After a bankruptcy the loans will be packages and sold to a different bank. So yes, your mortgage will still exist and most likely with the same duration and interest rather. It’s best to take a look at your mortgage contract to see what it stipulates. Cause every contract can be different and it is important to find out what happeens with your mortgage when something would happen that is not under your control. Taking loans are great for being abl to borrow money for a product. But never take it for granted.