Why Insurance Against Real Estate Prices Reduction Is Necessary

Let’s talk about insurance in a case of real estate prices reduction in your region or country in general.

This subject is rather narrow but thus very serious. It concerns situations on the real estate bought on credit.

When you take mortgage, bank will rather persistently impel you to insure bought property. However it is improbable that among insurance products there will be also such as insurance on case of real estate prices reduction in the market. This subject of insurance is seriously developed long ago in the European countries and very few people neglect it upon purchase of housing on credit. After all, the situation when the borrower gets to a default condition and faces to problem when apartment which was purchased on mortgages considerably lost the cost against depreciation of the real estate market. In fact we receive a situation when the cost of mortgage real estate became lower than credit cost. It means that in case of total loss of solvency of the borrower he won’t be able to pay off with bank even having completely sold mortgage real estate. That is, after sale he remains insolvent of the bank. Often this amount fluctuates within 20-40%.

It may seem that such problem is improbable, after all banks when crediting dwelling require rather impressive initial contribution. Then you reduce every month debt amount.

But according to researches and statistical data such situation is very widespread. The figures specified above concern only good times but what if the personal default is combined with a default of whole state? The cost of apartment can decrease twice and more times. As a result, just an enormous amount remains “to hang” on the borrower.

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