Upside Down In Your Mortgage? Welcome To The Club

By: tireddadoffive


Try to picture being hung upside-down over a yawning chasm. Imagine further still hanging there watching helplessly as the cash in your pockets slowly falls out piece by piece never to be regained as it disappears into the gloom below. Now picture the home you recently purchased during the real estate boom, or refinanced during the same period, not being worth what you initially paid for it. This is known as being upside down in a mortgage and until the current trend reverses you can almost count on losing a little money day by day.

What factors involved brought this problem into being? Probably the biggest reason is the equity mining that went on during the boom times and continues to this day in spite of all the negative media warning against it.

In some parts of the country homes doubled and even tripled in value, so people found themselves sitting on what was for them a considerable cash resource just waiting to be tapped. Another factor contributing to the problem is the real estate bubble is continuing to deflate and home prices are dropping.

If you chose to wring every last penny of equity out of your home during that time frame then the unfortunate consequence may be your home is no longer holding the same value thus creating a vast gap between what you owe versus the homes actual worth. In some instances the disparity may be tens of thousands of dollars. Making this problem worse still is those refinancing are experiencing "resets" on their adjustable rate loans causing their monthly payments to increase by hundreds of dollars in most cases.

Aside from basic greed and lack of foresight on the part of the homeowner there is another player in this drama. Along came a villain in the guise of a lender who was determined to convince you to "make hay while the sun is shining" and use that equity to your advantage.

Initially homeowners took the cash out of the equity for noble enough reasons. They used the money to pay for home remodeling and improvements, money for college, or maybe to start new businesses, all of which are reasonable motives.
The lenders were relentless however and convinced consumers to cash out the remaining equity to purchase new automobiles, watercraft, take expensive vacations, or any number of wasteful purchases.

As housing prices continue to plateau or decline, homeowners who have little or no equity could find they owe more on their homes then they are worth. Rising interest rates will have a great impact on homeowners with adjustable rate mortgages. They may find they are not be able to afford higher payments or sell the house for what they paid. Homeowners will find it increasingly difficult to stop foreclosures and the inventory of homes for sale will increase. It's a vicious cycle that could continue to send the real estate market into a downward spiral.


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