How to Avoid Ever Having an Underwater Mortgage

The real estate market has a huge problem with “Underwater Mortgages” nearly 25% of all US home loans have negative equity. Home owners with negative equity usually can’t sell their homes unless thay have a rich uncle or can qualify for a short sale. This stat is pretty staggering really. Nevada’s real estate market was out of control and they are now suffering the consequences. The national real estate market will see declines over the next year, how bad the declines will be will vary for Richmond Virginia Homes and Tooele Utah Real Estate. . It’s also not likely that home values will see any significant appreciation any time in the next five years.

Is there a way to prevent keep home values from declining? Is there something we can do about it?

Nope. We can’t really control the external factors associated with the real estate market , the government has tried to , but we can control the amount we owe on our mortgage loans . Only a very small percentage of the mortgage payment actually goes towards principle during the first few years of thirty year mortgages.

One of the ways that you can easily reduce principle is with a 15 year fixed mortgage. Right now, the average interest rate for 15 year mortgage loans are the lowest they have ever been. Refinancing to a fifteen year loan will result in a higher monthly payment, but a lot more of the payment will go towards equity. In just the first year of a 15 year fixed mortgage loan, principle is reduced by nearly 5%. So, your equity level would keep pace with a market where real estate values declined by 5%.

And, this was just the reduction in the first year. The neat thing with amortization schedules is that each year more principle is payed off.  During year 5, the loan amount will be reduced 7.5%, year 10, a reduction of 15%, year 14, 50.6% and year 15, it will be reduced 100%. At that point you can say that you actually own the property. After fifteen years with a 30 year mortgage, the loan is only 30% paid off after fifteen years. An owner doesn’t achieve 50% equity until year 20.

People’s attitudes towards using homes as investments has drastically changed over the last few years. The so called real estate investment guru’s used to recommend buying with no money down because home values always increase and savings could be used for better investments. Now, the wise decision is to pay your mortgage loan down so one day you can be mortgage free, and actually own an asset. By paying down your mortgage, you are also in position that you can sell anytime you need too, or if you just want to.

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