Quote:
Originally Posted by Trendseeker
You’re right, hayseed. A mortgage is different to a margin loan. The bank will not demand extra cash if the value of a property falls below the loan amount. As long as the borrower is meeting their repayments there would be no issue.
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Don't be too sure about that. Plenty of loan contracts will have that clause, but the lender may be unlikely to exercise it on residential property. Why not? Because the loans are full recourse, meaning if the borrower slips into negative equity, they can't walk away from the deal by posting the keys to the lender, aka 'jingle mail'.
So if a house in negative equity is sold for less than the amount owing, the borrower will go after the former owner for the difference. Many times the only option is bankruptcy. Ie extreme example -
https://australianpropertyforum.com/...-t-t17044.html
But to reiterate...the average suburban dweller just needs to communicate with the lender and stay current with their payment obligations. The major banks do not want to become mass landlords. Doing so would crystallize their losses by marking the debts to market, drive up their (already rising) funding costs and expose their Inherent insolvency. But that's another story.