The idea of being upside down on a vehicle is not that new. This commonly occurs when a consumer makes the decision to purchase a new vehicle before they have paid off their existing one. As a result, the balance of the loan on the existing vehicle is added to the note for the new vehicle. The result is that the consumer owes more on the new vehicle than it is actually worth.
Today, many consumers are finding they are now upside down on their mortgages. Unfortunately, this did not occur because they bought a new house and added in the cost of their old home to the new mortgage. This situation occurred in many cases because of the rapid rise of home values in many areas followed by the real estate market crash that sent home values subsequently spiraling downward.
In many markets, the majority of homeowners are now actually upside down on their mortgage, and that number is increasing rapidly. A large number of these homeowners are consumers who purchased their homes at the peak of the boom. During that time home values doubled and even tripled within a short period of time in many areas. This situation leaves many homeowners wondering what they should do. Options are often based on whether the homeowner is able to continue making their monthly mortgage payments. While some are able to pay their monthly mortgages, especially if they have a fixed rate mortgage, that is not the case with others who took out adjustable rate mortgages.
Homeowners who can still afford their monthly mortgage payments and who are not feeling the pressure to sell due to employment reasons may find they are better off by riding out the market decline. There is wide belief that once the market bottoms out and begins to rebound, these homeowners could still be poised to make a profit on their home.
Other homeowners are not so fortunate; however. In some cases, homeowners simply have no choice but to move now rather than wait as a result of relocation or job loss. Homeowners who have adjustable mortgages may also find they are simply no longer able to afford their mortgage payments as they continue to rise. These homeowners are now facing the bitter reality of foreclosure when they are not able to pay off their debts or refinance their home loans because of tightening loan restrictions.
Homeowners are also facing the reality that their options are reduced because they have little or no equity in their homes. The amount of equity a homeowner has in their home is often determined by the amount of their down payment. During the housing boom it was quite common for many buyers to purchase homes with very little, if any, down payment. At the time it seemed like a good deal; however, today it is causing significant problems as housing values continue to decline.
This situation is causing further problems for homeowners who would like to take out home equity loans either to make necessary home improvements or to consolidate higher interest debts. Even if they are among the few homeowners who do have equity in their home, they are finding that lenders are increasingly wary of making home equity loans. Just as the default rate on mortgage loans have increased, so has the default rate on home equity loans. Quite simply, lenders are no longer willing to take on risk when they are already holding a number of defaulted loans.
The ability to refinance has also dwindled in many locations. Not only are loan guidelines becoming stricter but most homeowners who are upside down are frequently finding the lower value of their home makes it nearly impossible to qualify for a new loan. In essence these homeowners now have negative equity and lenders are simply not willing to take on that risk.
Great Benefits, Serious Risks – A loan secured by a homeowner’s “equity” can be an economical way of borrowing money because the interest rate is typically low and, for many people, the interest paid will be tax deductible. However, there’s a big risk…
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A second mortgage, the second loan secured against the home, and second in importance to the first, means that should the borrower not be able to pay off the loan in full and the bank or money lender repossessed the home to recoup their losses, the first loan would be paid off first and the money that was over would be used to pay off the other loan.
The second mortgage loan has a higher interest rate than the first one to compensate the lender for the extra risk he has to take. The loan charges will be less as there is already a loan registered in the borrower’s name. It is not difficult to qualify for a second mortgage loan as the loan is secured against the home.
It is always prudent to shop around for lending agencies and banks that have the best interest rates and loan charges.
This loan is usually used for home renovations. Renovating the home periodically is important to keep up the value of the property. Major repairs can cost a lot of money but have to be done. The best way is to borrow the money and get the jobs done. Get quotes from various building companies and building supply companies for the work that needs to be done. When you have the best prices you can apply for a loan for the correct amount you will need to get the job done.
This loan can either be taken in a lump sum or you can open a line of credit and spend the money as you need it. In this instance, the line of credit would work very well as you will be able to pay for labor and material as the phases of the project are completed and the money will be spent for the purpose for which it was borrowed. This line of credit works much like a credit card.
A second mortgage can also be taken on the home to pay for a child’s college education. This loan is usually a large amount of money and a second mortgage would be ideal to pay theses expenses.
The housing slump has sent home values plummeting, and it has left an ever-growing number of homeowners upside down in their mortgage loans: They now owe more on their mortgage than what their homes are worth. This unfortunate economic reality has led a growing number of consumers to debt consolidation loans to help reduce the amount of credit debt they are carrying.
The National Association of Realtors reported recently that the median home sales price across the nation in December stood at $168,800. That’s down 1 percent from a year earlier, and significantly from the highs in home values the country saw in 2005 and early 2006.
In better times for the housing market, homeowners would have simply taken out low-interest-rate home equity loans to pay down their high-interest-rate credit card debt. That strategy to eliminate debt, though, is becoming rarer today. Far too many homeowners don’t have any equity in their homes, making home equity loans an impossibility. These homeowners, then, have few other choices but to turn to debt consolidators to help them gain a handle on their rising credit card debt.
Consumers who turn to this method will take out a loan with a debt consolidation company. Debt consolidators will then use the loan payments to pay down consumers’ outstanding debt. Often, debt consolidation firms will negotiate with creditors to reduce the amount of debt their clients owe. The negatives with debt consolidation loans, though, are significant: These loans often come with high interest rates and fees. Consumers often end up paying more in total by taking out a debt consolidation loan than they would have had they simply paid off their debt on their own. Debt consolidation loans also harm consumers’ three-digit credit scores – a big problem in today’s financial world.
However, with housing values continuing to take a beating, many consumers have no other choice for bad debt consolidation. Consumers in such a situation should be careful, though, to do their research before taking out a debt consolidation loan. They should ask their debt consolidators exactly how much they’ll have to pay in fees and how high their interest rate will be. They should also ask exactly how long it will take them to pay off their existing debt. By asking the right questions, consumers dramatically improve their odds of taking out a debt consolidation loan that will provide them with real financial relief.