9th Decmber 2018
NEGATIVE Equity, what does it mean?
As days go by, I hear big words, that can pull the wool over the eyes of the average mortals walking the street. Just the other day, “Negative Equity”. What is it? A banker friend helped me out.
When the market price of your property drops below your outstanding bank loan amount.
According to Domain https://www.domain.com.au/money-markets/first-home-buyers-being-pushed-into-negative-equity-as-falling-house-prices-bite-775484 “An estimated 386,000 home borrowers now owe more than the value of their home, and the number is expected to grow as the housing downturn continues to bite”.
How does it happen? How is it possible that property prices drop below loan amount? Considering, when you buy a property, any property, we have to come out with 20 to 50% of the property price. Has property price dropped that much for a negative equity to happen?
Well, my banker friend told me, normally people do have to get loan for 80 or less percentage of the price they have buying the property for, but sometimes, some buyers are able to secure 90 or even 100% of the loan amount, they just have to be able to pay the solicitor and loan fees.
When this happens, that’s when you will get into a NEGATIVE EQUITY situation, where the property prices dropped and will affect the loan outstanding to the bank.
When you want to BUY any property.
STAY AWAY from borrowing too much, because anything can happen in our future time line. The property prices may fall, like it is now, or we may loose our job that generate our monthly income which we need to pay for our home installment. Then when negative that can happen, will not affect us that could end up having the bank ‘force sell’ our home because we are not able to repay the monthly loan installments.
If you are thinking of buying property, consider a commercial property, just listed http://www.oracodesrealty.com/sell.html
Have a great day, everyday!
Licence Real Estate Agent | Stock and Station Agent| Auctioneer | Strata Manager
Oracodes Realty Pty Ltd
Licence Real Estate Agent in NSW.