As the real estate and financial markets continue to fluctuate, people often find themselves in the unique situation of holding an upside-down mortgage. But what does this term mean, and how does it affect a homeowner? An upside-down mortgage is when the homeowner owes more than what the current market value of the property is worth. This means that if the homeowner were to try to sell the property, they would still owe on the mortgage even if they sold the property for the current market value.
Why This Happens
The most common way for a homeowner to find themselves upside down in a mortgage is when purchasing a home during a period of increasing home values. When this occurs, homeowners are able to qualify for larger loans because they expect the increased value of the home to cover the loan. However, if the housing market eventually declines, it can leave the homeowner owing more than what the property is worth.
Options for Dealing With an Upside-Down Mortgage
If you find yourself in this type of situation, it is important to understand what options you have for handling it. One option is to try and negotiate with your lender to get the loan balance adjusted to meet the current market value of the property. This could potentially result in a lower monthly payment, and should be explored as a first step. Other options include refinancing the loan, or even a short-sale of the property.
Key Takeaways About Upside-Down Mortgages
In summary, an upside-down mortgage occurs when a homeowner owes more on the loan than what the property is currently worth in the market. This can occur due to rapid fluctuations in the housing market, and can lead to difficult decisions. It is important to understand the options you have, such as negotiating with the lender or refinancing the loan. Knowing your options when facing an upside-down mortgage can make a big difference in your financial well being.