Since the last financial crisis many homeowners do not know what to do if the mortgage is worth more than the house.
What do I do if my mortgage is more than my house is worth?
July 26th, 2010
When a house is worth less than the mortgage, then this is known as negative equity. It can be quite a common situation for people to find themselves in, and can bring certain problems.
Negative equity can happen for many reasons. It may be that a person has simply overpaid for the house. This is usually a temporary situation with repayment mortgages, but with the growth of interest only mortgages this has become more common and whereas people did not usually notice what had happened when they had a repayment mortgage as they would not need to move for two or three years they do notice this as the debt does not decrease.
Another reason for a homeowner to find themselves in negative equity is a decline in the condition of the house. This can be because a part of the house is hit by a fire or some other disaster, or it may be that the house is simply not being maintained.
Taking on more debt either through equity withdrawal or consolidation loans can mean that the mortgage can grow without the value of the house growing.
The most common reason for a person finding themselves in negative equity is that the housing market has declined in general, which means that many people who have not paid a large amount of their mortgage will find that their mortgage is higher than the current value of their house. This can happen even though the person has bargained down the price of the house when buying the house, not taken on any more debt and has maintained the property.
There are a number of things that can be done by a home owner that finds themselves in negative equity. The first sounds simple and that is not to move. If the negative equity is as a result of market conditions this will mean that the house will start to pick up in value over time and that the negative equity will only be temporary. While staying in the house it is a good idea to either start or increase mortgage repayments. This will have two effects, firstly reducing the negative equity and secondly reducing the interest that is charged on the loan.
If moving, it is often possible to transfer a negative equity mortgage. In these cases the choice of lender is restricted.
There is a big danger in walking away from a house with negative equity. The credit rating will suffer tremendously.
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What is negative equity?, Negative equity mortgages, Dangers of a Reverse Mortgage, How to Add to The Worth of a House, Obtaining a Mortgage When Selling a HouseTags: home mortgage, mortgage Australia
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