Underwater Mortgage: What Will Happen If I Walk Away?
by Mogamahttp://mogama.info
A Wise Geek blog explains upside down mortgages this way:
"Underwater mortgages are mortgage arrangements that effectively leave the owner with more debt on the property than the current market value . Generally, an underwater mortgage situation does not arise when a buyer takes out a first mortgage . The condition tends to arise when a second or third mortgage is taken out, or if factors within the area cause the property to depreciate in value unexpectedly. One of the most common ways of getting into an underwater mortgage situation is when a property owner chooses to refinance an existing mortgage. Lenders may offer the option of borrowing on the existing equity in the property. In some instances, this can be a workable option, assuming there is a large amount of equity built up. However, if the amount of equity is relatively small, this solution can quickly lead to a level of debt on the property that exceeds the current market value. When this takes place, the property owner is essentially in an underwater mortgage situation."
If the monthly payment becomes too much for the borrower to make on the upside down property, the lender may modify the loan to lower the interest rate or to extend the time left on the mortgage. I heard Chase Bank changed one home owner's loan from 30 years to 40 years to lower the monthly payment.
When underwater, the borrower could choose to turn in the keys and walk away. If you, the borrower takes the exit, here are the consequences to expect.
Your name will probably appear in the local newspaper. Foreclosure is often a matter of public record. Pray that your friends won't read the list of foreclosures in the newspaper. (Don't bet on it!)
If your local laws allow it, the lender may seek a deficiency judgment. That means the lender takes you to court after selling the house. Why? So the lender can collect the difference between what they sold the foreclosed house for, and the money they lost on the loan.
Walking away will ruin your credit history for a while, and here is what that means. You get high interest rate for new loans, including credit cards. Your car insurance company could raise your monthly premium when your credit rating takes a dive. You probably won't be able to get a new home loan for three years, may be five years. In the United States, a foreclosure stays on your credit file for seven years.
So before you walk away from that underwater mortgage, ask yourself, "How much is my credit score worth to me? Is it worth making payments on a house that may never be worth what I'll end up paying for it?"
If you determine that your precious credit history is worth that much to you, then by golly, stay in the house and remain drowned in your underwater mortgage, hoping you can endure the payments that you know are going down the drain.
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Article submitted Tuesday, January 26, 2010 & read 182 times.
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