Foreclosure Crisis A Lack of Knowledge - 1106 Words

The foreclosure crisis all boils down to lack of knowledge. Real Estate as any other investment entails risk and uncertainty. No one can foretell how much return an investment will make, or even if there will be a return at all. Risk is only matched by the size of the investment, where higher risks are taken for investments that have a higher possible return. That said, as Real Estate will undoubtedly be the largest investment for most of the population, it will definitely have the highest level of risk for most people in the population. Risk will be inherent in any investment as no one can be certain about the future; however risk is maximized by ignorance and minimized by knowledge. It is ignorance that has led to ill-advised home†¦show more content†¦Such payment structures lead to families overestimating what they could actually afford and only finding that reality of affordability had floated beyond their reach in foreclosure. The fundamental principle that must be realized is that foreclosure only happens when one cannot make timely monthly payments. The monthly payment is largest focal point of affordability in real estate. One must answer this: â€Å"Can I afford the monthly payment on this loan for the duration of the assigned term even when the loan adjusts?† If the answer is yes, then that will reduce the risk of foreclosure. Many people during the crisis tried to squeeze into loans that eventually adjusted above their affordability level. Some tried to refinance finding that since the value of their home decreased, they were stuck with their current payment. However, if they understood again, personal finance, and the structure of debt, they would understand that a high adjustment in interest rate would push them into a payment that was well above their means. Another topic to that should be discussed is how to budget and estimate a reasonable portion of income that should be devoted to living expenses. With budget one can track â€Å"where the money is going.† As with the government we need to trackShow MoreRelatedSolving The Foreclosure Crisis Essay987 Words   |  4 PagesIt is a well know fact that the world is in a financial crisis which has resulted in the foreclosure crisis. This is a problem that can not be resolved by the government alone. If the government continues to hand out bail out money to businesses trying to help them avoid bankruptcy or from going out of business the national debt will continue to increase. 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