What are the main risks of a personal home Loans?

I. Analysis from the bank’s perspective.
There are 3 main risks of personal home mortgage.

1. Borrowing purpose risk.

It is relatively easy to provide high quality collateral for loan application and approval, therefore, housing mortgage loans are more prone to false borrowing purpose. If the borrower misappropriates the loan or changes the use of the loan, the bank cannot understand and control the use of funds, and there is great uncertainty about the return of the loan when it is due. Once the loan is overdue, the bank needs to negotiate with the borrower or apply to the court for the auction or sale of the collateral, and the proceeds will be prioritized to return the principal and interest of the loan and related expenses.

If the borrower uses the loan for illegal or irregular purposes, the bank will also bear more risks such as compliance checks, internal audits and regulatory inspections.

2. Risk of repayment source.

Most banks have a superstitious belief in home mortgages and rely too much on the second source of repayment while neglecting to investigate the first source of repayment. If the borrower has problems such as financial strain after the loan, it will directly lead to no guarantee of repayment source, and the bank will bear the risk of overdue loans or even the formation of non-performing.

3. Risk of collateral disposal and realization.

If the borrower cannot repay the loan on time, the bank will be forced to dispose of the collateral property, and the disposal of the collateral is a long process, and there are many uncertainties, for example, there are disputes over the property rights of the house, there are applications for seizure by other creditors, there are municipal construction facing the risk of demolition and renovation, etc., which all bring obstacles to the bank’s exercise of claims.

In order to prevent the above-mentioned risks, banks should carefully investigate the purpose of borrowing before lending, investigate and verify that there are sufficient sources of first repayment, and at the same time make adequate assessment of the property rights, value and realizability of the collateral to ensure that the loan can be returned on time, or the borrower can quickly dispose of the realizable collateral when there are financial difficulties.

Some people propose that the mortgagee use the only set of housing can not be enforced, in fact, the Supreme Court judicial interpretation has been clear, not the only set of housing can not be enforced, but the debtor and his dependents living necessary housing can not be enforced, beyond the local average housing area, is enforceable, even if it is the only set of housing.

Second, the analysis from the perspective of the borrower (mortgagee).

Assuming that the borrower applies for a mortgage loan with his own house, the risk is mainly that, in case the loan cannot be returned at maturity, the mortgagee will dispose of the mortgaged house to liquidate it for the return of the loan principal and interest, and the price of disposal for liquidation may be much lower than the market price, of which the difference is the risk of loss for the mortgagee.

In order to prevent this situation, it is recommended that you must fully assess your repayment ability before applying for a loan and leave a margin. If you have financial difficulties after taking out a loan, find ways to finance the return of the loan from other sources to avoid financial losses to yourself if your home is disposed of and sold.