The biggest investment that any ordinary person makes is in a home of his own. It usually costs more than he has, and so a home loan from a financial institution becomes inevitable. To pay the full amount in cash without a loan would be ideal but few buyers can afford that.
Interest on the amount borrowed will be paid monthly. Over many years the interest alone will probably cost more than the price of the house. However, the cost of the loan is the price paid for an opportunity to make an investment. As the value of that investment increases with the value of the home it can more than compensate for the costs of borrowing.
Private ownership of property has made many people very rich. Small houses in good localities can rise astronomically in value as mansions rise around them. The saying goes in the property industry that ‘locality is everything.’
Buying an indifferent house in a good locality can make a person wealthy. As the area goes upmarket all the homes will appreciate in value making the capital value far greater than the amount paid for it. Private ownership of property is a great wealth maker, especially for those people who buy in the right locality. The ability to get a mortgage can make wealth making opportunities available.
Although great opportunities exist in property ownership, traps lie in wake for the unwary. They may mostly be described under the heading of ‘over exposure’. A person may have borrowed heavily to finance one or more homes. When the economy of a country hits a wall, property values drop, as do job opportunities. A person may be unable to pay monthly instalments, and when that happens debts escalates in a terrifying way. It may all end up with property being repossessed and finance costs far exceeding the value of the asset.
Major banks lend money to aspirant home buyers because it is a lucrative area of profit. Borrowers must know that the banks are not in business for charity.
It is certain that banks will be merciless both in deciding who will get loans, and in taking back a home if a borrower’s obligations are not met. Borrowers should enter into contracts with banks very warily and not expect any leeway if they cannot fulfil their side of the contract.
Borrowers who have difficulties in coming to suitable terms with major lenders may look elsewhere. There are other private or smaller lenders who may be more flexible, and able to offer better rates. It could be possible to switch from one of the major lenders to a smaller but more flexible institution offering easier repayment terms.