how does a falling economy cause people to default on their house mortgages, if their loan amount and income stay the same?
In: Economics
Job losses from businesses shrinking. No job, no mortgage payments.
High inflation. Can’t afford the mortgage AND food.
And the insidious one. Interest rates. Some people have mortgages with variable rates, so as interest rises so do their payments. As well, in some places (like where I am), mortgages are amortized (paid off) over 25 or 30 years but the *term* of the agreement is typically five years. So maybe five years ago you got a 2% interest rate and now you need a renewal. And the best rate you can get is 6% now. So your mortgage payments just jumped. Maybe so much you can’t afford it.
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