For the majority of homeowners, many often made on-time mortgage payments. With the ballooning unemployment rate or the shrinking of US jobs together with the undesirable event of home prices fallen off a cliff, many homeowners find themselves trapped for the first time after realizing a severe hit on the equity of their homes.
Anonymous homeowner named Brian, has never been late on a mortgage payment and always believed that paying off his mortgage was the right thing to do. However, as he witnessed his home value falling off the cliff, he is wondering if paying off his mortgage makes anymore logical sense.
Brian who works with the police force jointly bought a 4 bedroom property with his mortgage broker wife situated in the upper class neighborhood of Phoenix, Arizona in 2005 for around $650,000. They offered a twenty percent down payment and obtained a 30 year fix-rate loan. As they were expecting expensive fees for their daughter’s higher education, home construction together with a scheduled wedding, they applied for a second mortgage against their property. Today, they jointly owe their bank $647,000 for the first and second mortgage.
Average home prices in Phoenix have fallen 48% after peaking in the summer of 2006 as indicated by the First American CoreLogic Index. As a result, Brian estimates his home to be worth between $375,000 and $425,000 although it has a 4 car garage, a 1.2 acre lot that includes a swimming pool. Zillow.com, a web resource that estimates national home values based on the number of sales within its neighborhoods, estimated the house to be worth $374,000.
They are one of many millions of American homeowners who are underwater on their mortgage or owe more than their homes are actually worth. They are all faced with the common question. Should they keep making payments and hope things will get better or give-up and walk away with the consequences of a 7 year foreclosure scar on their credit records.
Luckily, they have not been evicted as they had the power to utilize some of their savings so as to continue paying their mortgage. With the remaining American homeowners who owe more than their homes are worth, there is simply inadequate equity in their properties to provide them security in the event of a medical emergency or an unexpected loss of wages such as job loss. Most of them are not able to rid their homes for enough money to pay back the bank as a result of severe fall in property prices. This notion makes them to be very likely victims of foreclosure.
An event that could save many is an incredible recovery in housing values therefore increasing the equity of their property. To be realistic, this is not going to occur in the short term.
Few of the families living in their area have abandoned their houses. It is easy for Brian and his family to do the same as they have the option of renting another property at a much more affordable rate relative to their mortgage payment combined with property taxes, insurance and maintenance costs.
Brian is reluctant to hope for a miraculous boost in property prices that will rid his problem. He said that if the emergency fund fell below a determined figure, they will think about a short-sale.
The definition of a short-sale is when the property is bought by someone for less than the mortgage amount owed and the difference forgiven by the bank. Brian stated that they have always made their mortgage payments. They are frustrated as they are depleting their funds so as to continue making mortgage payments. He urged that at some stage, you will need to know when to stop before hurting yourself and losing all your money.
Receive free foreclosure prevention information by learning about the latest announcements on government programs such as HAMP and HAFA. Read the original article Why Pay Mortgage When You Can Rent For Cheaper?
categories: mortgage,real estate,housing,foreclosure,business,investing,short sale