Many people in today’s housing market are in trouble because they have gone upside down on their mortgage. This means that they currently owe more on the principal of their home than their home is actually worth.
A home line of equity against the value of one’s home is one thing commonly used in today’s housing market to help pay for different things amongst home owners.
An example is that one may take out a $100,000 home equity loan in order to pay for bills, secondary education, medical bills, etc. However, this is proving to be an unsafe strategy as in the current depreciating real estate market; with the value of homes declining over time, people are going “upside down” on their mortgage and coming out of their home equity loans owing more on their homes than they are worth.
Over the past two years, nearly half of all home owners have gone upside down on their mortgage and have lost all investments on their homes. This is in major contrast with the housing market in the past, in which many people have felt safe purchasing a home and taking a mortgage, being able to purchase a home in an appreciating, profitable housing market. Many were even able to “flip” their homes and sell them after a short ownership period for a significant premium price, making a large profit on a small investment over a short period of time.In today’s housing market, it takes a long time of savings in a two income household with financial security to purchase a home and be able to successfully pay off their mortgage over the period of that mortgage. Even then, sudden changes in a household’s income for a short period of time may cause a family to become upside down on their mortgage.
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I find this really unfortunate, especially since not too long ago I aspired to be a real estate investor and I plan to buy my first home next year. At this point in time the real estate market is a sector in our economy that is doing terribly and I will be ecstatic to see home owners who have gone upside down on their mortgages get some sort of help to pull the out of serious debt.
Jazelle Reed - September 29, 2008 at 3:10 am
This scenario is another result of people extending themselves too thin financially. They were given these outrageous mortgages that they could not afford in the beginning, then given the opportunity to borrow against that mortgage. This example sounds ridiculous to most people, and I completely agree. Hopefully, the government will put in stricter regulations on the mortgage companies and banks, and eliminate this growing problem in our country. On the other hand, I do not think that the housing market will stay down forever, therefore, if it begins to rise again, maybe some of these borrowers will see their houses appreciate and get out of this dreadful situation.
tmsiverd - September 29, 2008 at 5:01 pm