Today, in our economic crisis the term “underwater mortgage” is being used more than ever before. When a homeowner is left with more debt on their home than what it is worth on the current market value, they now have what is called an underwater mortgage. This type of event can happen for several different reasons. Generally, when a homeowners takes out a first mortgage this situation usually does not occur. Most of the time this condition comes about when a homeowner takes out another loan on the property, or possibly even factors in the neighborhood causing the homes in the area to depreciate in value.
One of the most common ways a borrower will get into this situation is when they choose to refinance their existing mortgage. Once the property starts to build up in equity many times lenders will allow the homeowner to borrower money from the equity they have built up. In some cases if the homeowner has been in their home for a while and has built up a lot of equity, than a refinance can be very beneficial. However, if they have barely started to build up their equity this can easily lead to a mortgage becoming underwater.
Another way a mortgage can easily become upside down is when when properties begin to shift in value. When changes in the surrounding area occur such as rezoning, there is a high possibility the home will will began to lose much of its value. Therefore leaving the homeowner with a higher mortgage balance than the property is worth. In some rare cases an underwater mortgage will occur because the borrower choose obtain an extra mortgage on their property. As long as the borrower has a secure job and great credit many lenders are willing to offer a third mortgage. Having this many mortgages can easily lead to default on one or more of the loans.
But due to today’s economic struggles the value of the housing market has greatly depreciated in value. Therefore, the majority of homeowners across America are now stuck with an underwater mortgage and are dying to find a way out.