Childhood cartoons have programmed us to see bankers as evil, greedy businessmen who delight in preying on the poor. Case in point: Snidely Whiplash.
Snidely Whiplash and Nell
As children we latched onto stories of the evil banker who held the mortgage on poor Nell’s ranch. Somehow a hero, Dudley Do-Right, emerged in the nick of time to save the day, and the banker was foiled again.
Take Your Mortgage to the Grave
Snidely Whiplash is at it again in the United Kingdom; only now he has a new scheme to snatch up the property of the poor: lifetime mortgages. It seems that Snidely has been so successful at lending to people who cannot repay their mortgages that he’s overwhelmed the system.
But beware of bankers bearing gifts. In the UK, interest-only mortgages allow borrowers to repay only interest during the life of the mortgage, usually twenty-five years. While that keeps month-to-month costs low, borrowers still have to repay the balance at the end of loan’s term… You can see where this is headed.
As Dan Hyde, Consumer Affairs Editor of the Telegraph reports,
Around 130,000 interest-only mortgages are due to expire every year until 2020, with half facing a shortfall of £71,000 on average, according to the City watchdog.
Of the 2.8 million interest-only mortgages in Britain, an estimated 1.3 million are ticking time bombs, so to speak. Banks touted interest-only loans when the industry was booming, but as these notes come due, borrowers are faced with losing their homes.
The Poisonous Band-Aid
In order to mitigate the crisis, magnanimous bankers are offering lifetime mortgages to borrowers in their 50s and 60s who are coming up short. How do these Band-Aids work? The borrower continues to pay interest and can remain in the home for life. When the borrower dies, the house reverts to the bank. (Sorry kids, no house to inherit.)
During boom times, buyers on both sides of the Pond bought homes they could not realistically afford. No money to put down? No problem! Just sign here, move in, and start making the payments. It’s as simple as that.
