Homeowners Tackle Negative Mortgages
The concept of a consumer who is upside down with respect to a vehicle is certainly not at all new. This is commonly due to a consumer purchasing a brand new vehicle before having paid off the existing one. As such, the balance on the previous loan is now added to the new vehicle's note, with the outcome of a consumer who now owes more for his new car loan than the vehicle itself is actually worth.
Nowadays, an increasing number of consumers find themselves also upside down on mortgages. This, unfortunately, does not result from the purchase of a new home with the resultant addition of the previous mortgage to the new one. Rather, this sort of situation is usually the result of rapid increases in property values followed by a down sweep in the housing market which subsequently sent property values on a downward spiral.
California, and certain other markets, is now overrun with an ever increasing number of homeowners who are currently upside down with respect to their mortgages. The vast majority of these homeowners happen to be consumers that had purchased their properties when the housing boom was at its peak. At that particular time, many areas saw the doubling or even tripling of property values within a very short period, leaving many homeowners at a loss as to what to do. Decisions like these will hinge on the homeowner's ability to keep up with monthly mortgage payments. Whereas some persons, especially those with fixed rate mortgages, may be able to afford the mortgage payments, others who have adjustable rate mortgages may not be so fortunate.
Homeowners retaining the ability to meet the obligation of paying their monthly mortgage without the pressure of needing to sell for the purpose of employment may find themselves better off if they simply ride out the decline in the market. There is the common belief that the market will start to rebound once it has bottomed out and if this occurs then these homeowners stand the chance to still make a decent profit at that time.
Other homeowners may be less fortunate, however. There are certain circumstances, including job loss, which may force some homeowners into a proverbial corner, giving them no alternative but to move and sell now rather as opposed to waiting out the market. Homeowners with adjustable rate mortgages may also have difficulties trying to make their mortgage payments on a monthly basis as the rates continue to increase while waiting out the market. These homeowners will now be forced to foreclose on their homes as they become more and more unable to refinance their mortgages or pay off their current debts.
With little or no home equity, homeowners are boxed in by their limited options. The value of the down payment made on a home is what is used to determine equity in that home. With the housing boom that took place, many buyers were able to purchase their homes with little or no deposit. This, at the time, appeared to be a great deal, however, it is proving to be the source of significant problems during these times when property values are on a steady decline.
Homeowners desiring to obtain home equity loans for home improvement or for the purpose for consolidating debts with higher interest rates will find themselves in great difficulty. Even if these homeowners do have some amount of home equity, lenders are becoming far more wary of granting home equity loans because of the high default rate, similar to that on mortgage loans. To put it simply, creditors are now far less likely to assume this kind of risk when they already have a significant amount of defaulted loans on their hands.
Many locations also suffer from a decreased ability to refinance loans. Not only have the loan guidelines become more stringent but homeowners being upside down with respect to their mortgages find that a decreased property values make acquiring a new loan nearly impossible. These homeowners, therefore, basically have negative home equity and creditors simply refuse to assume that kind of risk.