A mortgage is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing owners of property to raise funds for any purpose. What it means is that if you do not have enough money to buy a house, a financial institution can lend you the money while you pay back with interest, over an agreed period of time.
It can also mean that you borrow some money from a financial institution, for personal or business purposes while you use your property as a collateral with the condition that the lender takes the property when you default on your payment.
This article will be looking at the positive and negative effects mortgages have on the American economy.
POSITIVE EFFECTS OF MORTGAGES
There are a number of positive effects of mortgages on the economy, we will look at some of them.
Reduces homelessness
Mortgage helps citizens in reducing the number of homeless people in the country.
When people have their own homes, it decreases the rate of irresponsibility, giving the government less work in maintaining orderliness, thereby contributing to the economic growth of the nation.
Strong Housing Market
When there is more disposable income, it leads to a rise in both mortgages and home sales. It means that the more lending and spending there is, the lower mortgage rates will be. A strong housing market in turn, leads to an economic boom.
Increase in Revenue
Mortgage allows more housing construction which becomes an engine of economic growth due to its high yield on invested resources. Increased housing activities gives room to an economy with enhanced capacity utilisation of related industries such as steel, cement, transportation and paint industries etc.
This leads to an increase in revenue to the government by way of excise and other taxes. Taxes which are eventually used by the American government to regulate its activities. Increased housing activities also result in more revenue for the government by way of stamp duty.
Employment Opportunities
Mortgage institutions indirectly aid the livelihoods of non-corporate professions, e.g carpenters , electricians, iron benders etc. The construction of houses requires the services of these professions. They are paid at the end of their services. This allows money flow consistently around the economy and creates a stable and problem free economy.
NEGATIVE EFFECTS
Just like everything else, mortgages also have negative effects on the economy. We will discuss some of the negative effects.
Interest Rate
The constant change and increase in Interest rates on mortgages allows a mortgage debtor to pay more than planned for. This may cause him/her to reduce consumption expenses which would in turn, affect the economy indirectly.
Unfavourable Mortgage Distribution
Due to negative experiences from clients with low income, clients who got laid off work and other unforeseen circumstances during the mortgage process, mortgage institutions usually ensure they give loans to employees with high net worth. This results in the economy being unbalanced as every qualified person is liable to a loan.
Financial Insecurity
Individuals who involve mortgage institutions in getting a home are not financially secure until the loan is settled. The payment plan is usually spread within years which makes the client caged financially. Financial insecurity leads to low productivity which in turn, puts the economy in a stagnant or downward slope.
Unforeseen Expenses
Unforeseen expenses can come up as a result of damages made during the stay of the client in the mortgaged property which leads to more spending by the client. This can drain the client’s financial resources and in due course, creates an unstable currency movement in the economy due to higher expenses made on housing and maintenance.
There are different types of mortgages and the your choice depends on a number of factors.
As discussed above, mortgages on the country’s economy bring about both positive and negative effects.
The situation of the economy at the time a mortgage is being processed determines the outcome. Overall, mortgages increase the revenue of the government when all terms are met.
A mortgage is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing owners of property to raise funds for any purpose. What it means is that if you do not have enough money to buy a house, a financial institution can lend you the money while you pay back with interest, over an agreed period of time.
It can also mean that you borrow some money from a financial institution, for personal or business purposes while you use your property as a collateral with the condition that the lender takes the property when you default on your payment.
This article will be looking at the positive and negative effects mortgages have on the American economy.
POSITIVE EFFECTS OF MORTGAGES
There are a number of positive effects of mortgages on the economy, we will look at some of them.
Reduces homelessness
Mortgage helps citizens in reducing the number of homeless people in the country.
When people have their own homes, it decreases the rate of irresponsibility, giving the government less work in maintaining orderliness, thereby contributing to the economic growth of the nation.
Strong Housing Market
When there is more disposable income, it leads to a rise in both mortgages and home sales. It means that the more lending and spending there is, the lower mortgage rates will be. A strong housing market in turn, leads to an economic boom.
Increase in Revenue
Mortgage allows more housing construction which becomes an engine of economic growth due to its high yield on invested resources. Increased housing activities gives room to an economy with enhanced capacity utilisation of related industries such as steel, cement, transportation and paint industries etc.
This leads to an increase in revenue to the government by way of excise and other taxes. Taxes which are eventually used by the American government to regulate its activities. Increased housing activities also result in more revenue for the government by way of stamp duty.
Employment Opportunities
Mortgage institutions indirectly aid the livelihoods of non-corporate professions, e.g carpenters , electricians, iron benders etc. The construction of houses requires the services of these professions. They are paid at the end of their services. This allows money flow consistently around the economy and creates a stable and problem free economy.
NEGATIVE EFFECTS
Just like everything else, mortgages also have negative effects on the economy. We will discuss some of the negative effects.
Interest Rate
The constant change and increase in Interest rates on mortgages allows a mortgage debtor to pay more than planned for. This may cause him/her to reduce consumption expenses which would in turn, affect the economy indirectly.
Unfavourable Mortgage Distribution
Due to negative experiences from clients with low income, clients who got laid off work and other unforeseen circumstances during the mortgage process, mortgage institutions usually ensure they give loans to employees with high net worth. This results in the economy being unbalanced as every qualified person is liable to a loan.
Financial Insecurity
Individuals who involve mortgage institutions in getting a home are not financially secure until the loan is settled. The payment plan is usually spread within years which makes the client caged financially. Financial insecurity leads to low productivity which in turn, puts the economy in a stagnant or downward slope.
Unforeseen Expenses
Unforeseen expenses can come up as a result of damages made during the stay of the client in the mortgaged property which leads to more spending by the client. This can drain the client’s financial resources and in due course, creates an unstable currency movement in the economy due to higher expenses made on housing and maintenance.
There are different types of mortgages and the your choice depends on a number of factors.
As discussed above, mortgages on the country’s economy bring about both positive and negative effects.
The situation of the economy at the time a mortgage is being processed determines the outcome. Overall, mortgages increase the revenue of the government when all terms are met.