Posts Tagged ‘heloc’

Valuing Your Home: Lost Home Equity Can Bite You

Posted March 11, 2009 by Bernz

It’s hard to go a single day without hearing or seeing a headline shouting about the mortgage crisis. High foreclosure rates and tighter lending practices are causing the inventory of houses for sale to increase and the number of sold houses to decrease. This has created a drop in average housing prices as the supply outstrips the demand.

valueingyourhomeWhat does that mean to you though if you have no intention of selling your house tomorrow? It can mean plenty and can even land you into financial hot water. When the average sales price declines in a neighborhood, the decreased value is also attributed to the occupied houses in the area. If, for example, housing prices come down 20% this year in your community, it means that your house is worth 20% less.

The main party that will care about that is your mortgage company. They have loaned you the money to purchase the house of the basis of its value at the time of the loan. Now that the value has decreased, the loan-to-value ratio has gone up which means the mortgage company is taking on more risk than they had initially intended. The value of your home may now be even less than the balance of your mortgage. This is called “being upside down” on your mortgage. If the mortgage company had to take your house back and sell it, they would be out of pocket for the shortfall.

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Posted in 401k, Financial Education, Investing in Real Estate | 1 Comment »