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What is so bad about being "under water" on your mortgage?
I know that 1 in 4 people owe more on their house then what it's worth but I don't understand how that can be bad if you have a regular mortgage payment (fixed) and you haven't lost your job.
I understand why people who have adjustable rates are upset about it being worth less then they paid but I don't understand what it affects if your still in ok shape financially. I mean, other then not being able to sell your house any time soon, I don't understand.
-NOT a homeowner, btw. Never been through the process, so there may be something I'm totally missing.
Most of you are not answering my question. IF YOU DON'T NEED TO SELL IT, then why is it bad?
Another thing: Do you still accrue equity eventhought the house is worth less then what you owe?
Again, NOT a homeowner. I live in Northern California where owning a home is immpossible.
15 Answers
- SinisterMattLv 51 decade agoFavorite Answer
The problem with that is that even when you sell the house for what it's worth you still owe money on it and will continue to make payments on something that you don't even own anymore. That's like you making payments on my car. It's just an additional funnel of money.
And it's incredibly dumb to bank on the fact that you will always have a job and that the bank will be stable enough always to not call up your loan. Stuff happens to everyone.
Cheers!
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- Anonymous1 decade ago
It really only becomes a problem when the bank forecloses on it or if the homeowner has to sell. If the homeowner likes the house and keeps up on the payments it means nothing, the value should increase eventually. Over time, real estate always increases because of inflation.
Been a homeowner for twenty years. My house is still valued for far more than what I paid.
- 1 decade ago
That was the problem with Fanny and Freddy just handing out mortgages with the Fair Lending act.
People who could not afford nor had no business buying a house got approved. The bad part about being 'underwater' is that they can simply default ON THE CONTRACT THEY AGREED TO and rent again.
My house is currently worth less than when I bought it but I SAVED AND MADE A HUGE DOWN PAYMENT in order to keep the mortgage manageable. I also saved for an emergency in case I lose my job or something catastrophic happens.
Let me tell you it wasn't easy when the government takes over half of your income. But I did because that is what a responsible person does, I also plan to honor my contract too. Something which MOST AMERICANS CAN'T F************N GRASP.
work-save-buy? how hard is that?
- SteveLv 61 decade ago
Nothing as long as you don't plan on moving anytime soon.
Except for the idiots that took out ARMS. Those idiots thought they'd be able to jump ship on their ARM before it adjusted because their house would be worth so much more in 5 years that they could refinance with the new equity even though they weren't even making big enough payments to cover the interest. Obviously, no one with a brain in their head took an out an ARM that they couldn't afford when it adjusted. Unfortunately there are an awful lot of people that apparently don't have a brain in their head.
Anyone that argues with this, would you buy a Ferrari that had $100/mo payments for the first five years hoping that it'd be worth more in 2015 so you could refinance?
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- 1 decade ago
I have neighbors all around me that bought homes at inflated prices.
Most of them tried to do the right thing by putting money down on their home when they bought.
Most of them are professionals who can weather this kind of storm.
It's not bad to have an under water mortgage, if you can weather the storm.
It is bad if you have a house you paid $400k for, put down $100k and now the home is only worth $275k, if your employment depends on the economy.
There were also people who scammed the system that Barney Frank said was "OK"!
PAT shouldn't question other peoples education if Pat can't spell skipped!
- 1 decade ago
It is bad because if you want to sell - you either take a loss and pay the mortgage company the difference in what is owed and what you sell it for, or you stay in the house and can't sell.
It also means you have no equity in your home. Usually people can use the difference in the value of their home versus what they owe, in case they need to get a loan against their equity for home improvements or something.
- The Dark KnightLv 51 decade ago
Nothing. They agreed on a price when they purchased. People are now so unhappy because the value dropped. NEXT TIME PAY CASH!
Also, my house has lost value. I paid cash for it. I have nobody to cry to like they do. I can't just up and screw the mortgage company out of money they are owed. In my opinion there is nobody to blame but the homeowner. If you want to whine about being underwater then maybe next time pay cash or just keep renting until you have enough cash.
- Anonymous1 decade ago
Let's say you bought a house for $200,000. You owe $190,000 on the mortgage but the house is only worth $150,000. If you were to sell the house, assuming you could, you would still owe the mortgage company $40,000. Essentially you're out 40K because the mortgage is "under water."
- Anonymous1 decade ago
The advantage of owning as opposed to renting is earning equity that you can borrow against.
A renter does not have to pay the taxes, insurance and maintenance, while an owner does.
Therefore if you are underwater you have the additional costs that pop up, and have to pay them out of pocket instead of being able to spread things out.
- LA_ChickLv 61 decade ago
It's really bad for people who need to move. It's not just people who have adjustable rates that are affected, it's everyone who bought a home while prices were high.