With the recent problems in the housing market, many homeowners have found themselves with underwater mortgages, a term relatively foreign to most until recently. An underwater mortgage is simply a situation in which a homeowner owes more than the market value of the property. Underwater mortgages can cause financial strain and devalue the most valuable asset most people own: their house.
When a homeowner does a lot of refinancing or borrowing against the equity value of one’s house, one essentially takes away a piece of ownership and gives it back to a lender. When one does this too many times, it’s possible to actually borrow more against the house than the house is actually worth. Avoid refinancing when it’s not right to refinance.
Get Out While the Getting is Good
Homeowners sometimes forget that they do not solely control the value of their homes. Things happening around them also affect property values. Sometimes it’s easy to see when it might be time to start thinking about moving. Multiple foreclosures around the neighborhood, a general decline in the upkeep of homes in the area, and slipping school systems can all cause home values to fall. Other times, however, home devaluation might require a bit more savvy. Knowing when to ride out a housing bust because chances are good for recovery and knowing when a neighborhood might be on a permanent decline requires close moderation of local politics and demographic trends.
By avoiding bad refinancing decisions and when it might be time to find a new home can help homeowners avoid mortgage debt.