In September 2010 approximately 5.1% of mortgage accounts were in arrears (behind on mortgage payments) of 90 days or more - Leaving Cert Economics - Question 9 - 2011
Question 9
In September 2010 approximately 5.1% of mortgage accounts were in arrears (behind on mortgage payments) of 90 days or more. Outline two economic reasons for this dev... show full transcript
Worked Solution & Example Answer:In September 2010 approximately 5.1% of mortgage accounts were in arrears (behind on mortgage payments) of 90 days or more - Leaving Cert Economics - Question 9 - 2011
Step 1
Increased interest rates
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Answer
Higher interest rates typically result in increased borrowing costs for mortgage accounts. This can lead to a situation where borrowers struggle to meet their repayment obligations, particularly if their financial circumstances remain unchanged.
Step 2
Increased unemployment
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The economic downturn often leads to rising unemployment rates. When individuals lose their jobs, they experience a significant loss of income, making it difficult for them to manage ongoing mortgage repayments.
Step 3
Action 1: Re-schedule the loan contract
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Financial institutions can extend the repayment period of the loan, which reduces the amount due each month, thereby making it more manageable for the customers.
Step 4
Action 2: Debt/ equity swaps
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Institutions can offer to take part ownership of the property in return for reduced repayments. This approach can help alleviate the burden on borrowers who are struggling to keep up with their payments.
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