home purchase loans
Question
Should I put money on my principle on an upside down mortgage?
I purchased a foreclosed 3/2 home in South Florida in September 08 and paid $145,000. The value has since dipped to $103,000 which means I'm now in an upside-down mortgage. Now since the property value has dropped so much I over-escrowed for my taxes and I stand to get about a $3000 refund. Does it makes sense to pay that $3000 towards the principle? Since I have negative equity in the place my thinking is that I would be throwing away that $3000 if I put it down on principle. Intially I bought the home for myself and my new wife, but planned on upgrading to a bigger place when we started a family. Obviously I'm going to have to stick around for a while, but I highly doubt I will be in this home for the duration of the loan. I realize that paying on the principle will reduce the length of the loan. But I really hope I can move into a bigger place by 2014. Should I take the $3000 and pay off some credit card debt (about $2000 worth) and use the rest to go on vacation or should I indeed put the money down on the principle. Thanks a ton for your answers in advance.
3 weeks ago - 2 answers
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2012 comes out next Friday so we will see if we will all be here in 2014. But seriously there is no reason to put any money into an upside property. Nobody really knows when your property value will recover. People are currently walking away from properties every day because of this reason. Millions of loans are set to adjust this next year that were funded in 2007. They are also upside in there properties and most of them will not get relief. By putting any money towards your principle at this point would be like throwing it into a fire. Just hope that by 2014 the home worth at least what you bought it for. The housing inflation in Florida was set by Realtors and appraisers trying to get rich quick. These homes were never really worth what they appraised them at. The bigger the loan amount the bigger the commission. Back in 2005 if you were 18 and had a social security number you could buy a half million dollar home. You want to pay on principle when things have stabilized and there is real equity. With that said if you have extra money to towards principle you should think about 20 or 15 year loan options. Make bi monthly payments and pay your home off even faster. At this point your home is more in the liability category.
3 weeks ago
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Other Answers
You probably have a decent interest rate on the mortgage, so I would definitely get rid of higher interest credit card debt first. That would only leave you with $1000, which isn't going to put enough of a dent in your principle to reduce your payments by any reasonable amount. You will still be paying mostly interest since you are only going into your second year. If you had much more to pay down with, that might make sense. But in this case I'd wait around for the 4 to 5 years you have planned and see what property values do in that time. You may still be upside down at that time, but perhaps less so. Instead of a vacation, though, I might see if there were some sort of home improvement I could make for $1k that would have a larger payback in terms of increased property value. That might help with the appraisal problem.
by OldJimmy- 3 weeks ago