A recent story on the increase in mortgage defaults cited home value decrease as a cause of defaults. Why would a drop in house value cause financial problems for a mortgage holder? (Wouldn't they actually benefit a little from the decreased property taxes?) They pay the same payment each month, based on initial home value, and wouldn't be dependent on later value, right?
2007-07-24 14:15:51 · 3 answers · asked by romulusnr 5 in Business & Finance ➔ Renting & Real Estate
As the previous posters mentioned; if you purchased a home for $250k with no money down with a negative ammortization loan or andjustable rate mortgage that is due now and your home value has dropped to 225k then you are in trouble. First, you will not be able to refinance or sell the house unless you have money for the difference. Second after realtor fees of 3%-6% you have lost out big time. You either face foreclosure if you cannot repay your monthly debt (rising interest rates) or you are stuck paying extra money out of pocket if you are pressed to sell; not a good position. To avoid these things you should purchase a home with at least 5% to 10% down and 10% below market value to shield yourself from this occurence. Many people overpaid till 2005 and now are stuck; try to avoid multi-bid situations and stay afloat on what is going pn in your area.
2007-07-24 19:00:05 · answer #1 · answered by tianaramal 4 · 0⤊ 0⤋
Defaults increase when property values drop when owners are required to sell due to job moves or divorces, amongst other things. They quickly discover that their $300K mortgage will now only bring $275K at sale, and they have to fork over $25K in cash to break even.
Some folks are just irresponsible and don't feel like they should pay the mortgage on something which has dropped considerably in value.
2007-07-24 14:20:53 · answer #2 · answered by acermill 7 · 1⤊ 1⤋
the reason is because many homeowners are now attempting to refi due to their bad loans that they previously took out - the ARMs (adjustable rate mortgages)...the monthly payment on these loans are going up up up ---i personally know of a couple who started with an $800 per month mortgage and are now attempting to pay over $1900...terrible.
anyway -people are attempting to refi their loans...they cannot because their property value has dropped but their loan value is still high...they cannot get out of the current loan, thus they are forced into foreclosure.
hope this helps
2007-07-24 14:22:10 · answer #3 · answered by Blue October 6 · 1⤊ 0⤋