Underwater Mortgage Holders Increase in 2010 Quarter 1
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Those with underwater mortgages increased during the first quarter of 2010, reports Zillow. These underwater mortgages are those in which the owner owes more on the home than it is worth. This situation is also known as having negative equity. Many people are seeing increases in negative equity since home values began falling in late 2007. As home values fell, underwater mortgages increased, since the market value of homes bought for little down, or homes that had home equity loans against them, declined. Without an equity cushion that comes a down payment, many home owners found themselves upside down on their mortgages.
For some, this isn’t as big of a problem. If you can still afford to pay your mortgage, and there is little chance of you going anywhere, being a little bit underwater isn’t as big a deal, since you can hold on until the market starts to recover. However, if you run into income problems, if you plan to move, or if you are looking at a resetting mortgage rate, being underwater can cause even more severe problems. Indeed, you are at a greater risk of foreclosure if you have negative equity, reports Bloomberg:
Underwater homes are more likely to be lost to foreclosure because their owners have a harder time refinancing or selling when they fall behind on loan payments. U.S. home values dropped 3.8 percent in the first quarter from a year earlier, the 13th straight period of year-over-year declines, Zillow said.
“Having a lot of underwater homeowners will add to the downward pressure on house prices,” said Celia Chen, senior director at Moody’s Economy.com in West Chester, Pennsylvania. “We do expect that home prices will fall a bit more.”
The idea that these underwater mortgages could contribute to another decline in homes prices is another thing to keep in mind, especially if you are buying. It might be worth holding off for a couple of months if you are looking, just to see if home prices drop a little more. If you think that interest rates will remain somewhat low as well, waiting a little bit might be wise.
In the end, though, no matter what you decide to do, it is important to understand the true costs of owning a home, and make sure that you can afford what you are buying.
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