Quote:
Originally Posted by Rick Lee
However, the bank incurs risk every day there is an outstanding mortgage on the house.
|
Not really, depending on how conservative the bank is.
If a bank makes a reasonable assessment of the value of its collateral, both in the present and the future, and requires enough of a down payment for the loan, there is almost no risk to the bank.
In the event of a payment default, the bank simply hires a lawyer, forecloses, adds the attorney's fees to the obligation, sells the house and pays itself back every penny it is owed.
Also, there is pretty much no risk after the first half of the mortgage has been paid down. By then, there is almost always going to be sufficient equity to fully protect the bank in the event of a default.