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When Your Mortgage Sinks UnderwaterThere's growing panic among homeowners these days as the market values of homes continue to slide. The trend is sending borrowers "underwater," meaning that they owe more on their homes than what their homes' "market values" (the amounts they could sell their homes for today) are. Of course, this is not a good thing, but is it cause for panic? Probably not. Let's say you purchased a home five years ago for $250,000 with a down payment of $50,000 cash and a 30-year, $200,000 mortgage at 6 percent fixed. Your monthly payments would be about $1,200. Let's further assume that your area has suffered a significant drop in real estate prices. Today your home on the open market possibly would be worth $175,000. Technically, by today's standards, you would be "underwater," because you would owe about $189,000 on your mortgage. You can't imagine the mail I am getting from readers who are in panic mode because they are "underwater." The ones who worry me the most are those who are considering just walking away from their homes and mortgages because they believe they are drowning. As much as I want to sympathize, I have to wonder: What are they thinking? Would you throw away your 5-year-old television because you could get one cheaper today, even if you still were making payments on it? Of course not! Prices fluctuate. Markets go up and down. Who among us has not purchased something for full price, only to see it go on sale for a fraction of the cost in the future? It's maddening, but that's not a good reason to do something stupid. Back to your home mortgage.
Until you actually sell, your home's market value and your equity are just numbers on paper. That's true when prices are soaring and when they plummet. You have not gained or lost a thing until you sell. If you are not being forced to sell your house, here is my best advice: Stop tracking its market value. Just stop paying attention. Instead, focus all of your attention on making your payments on time and keeping up with repairs and maintenance. What you should be tracking is how far you are from owning that home outright. The sooner you can do that the better. While you're not watching, don't be surprised when housing values reverse and begin to climb again. Consider that an unexpected bonus. Mary Hunt is the founder of www.DebtProofLiving.com and author of 18 books, including her latest, "Can I Pay My Credit Card Bill With a Credit Card?" You can e-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com. COPYRIGHT 2009 CREATORS SYNDICATE INC.
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