THE Patio11 bitcoin calculator FOOL: Garth Turner comments on economics, real estate, money and the road ahead. So, what if you can’t pay your mortgage? With housing frenzied and realtors erupting in many markets, it may seem an odd question. After all, only a tiny fraction of borrowers are three months behind in their payments.
But every day more people walk into more debt. We now owe over a trillion in residential mortgages. Never before have so many people bought so much real estate with so little down. If the economy were to soften, rates rise or lots of jobs be lost, then many owners might wonder: why would I continue to pay a mortgage which is bigger than my condo’s worth? Most homeowners have no idea what transpires when they can’t cough up the monthly. Canadian equivalent of jingle mail. That’s the sound an envelope full of house keys makes when you mail it back to the bank.
Large numbers of Americans, their houses underwater and unable to service their borrowing, just moved out and sent the keys back, or left them on the kitchen counter after receiving foreclosure notices. Canadian provinces: you can’t walk. Canada is a country where the former applies, which means once you sign up for a mortgage you will never be rid of it unless you pay it off over time or through the proceeds of a sale. Only Saskatchewan has non-recourse lending, where deadbeat borrowers can wiggle out of debt. Most Albertans think all mortgages there are the same, but not if you have an insured loan. So, with a recourse mortgage, here’s the drill: you miss a few payments and the bank will send you a lawyer’s letter telling you to get current. The cost of that letter is often added to your debt.