Mortgage Options For When In Negative Equity
Negative equity can be the scariest phrase to any individual, especially when he or she has a huge outstanding mortgage. So, what exactly constitutes negative equity? Negative equity is the condition where an individual’s home has a lower value when compared to the outstanding mortgage that they have left to address. It goes without saying that negative equity only holds good for those with ownership over property.
Those individuals who are renting places, are not bound under such regulations and do not owe a mortgage. In that vein, those who own property but are without outstanding mortgage payments to be made are also free from negative equity. Therefore, to find out if you are in negative equity, it might be a good idea to check the value or worth of your house, followed by the amount remaining to be paid on your mortgage, and compare the two to know if you are in negative equity or not. You can find out the value of your property by checking the value of the property in your location. To know your outstanding mortgage amount, check your mortgage statement or find out the same from your lender.
Once you check your mortgage outstanding amount and if you are within a safe range, then it should not be a matter of concern. Nevertheless, if your outstanding amount is very high and your negative equity is also high, then you need to find a way to fix it. Let us look at some effective ways to solve the problem of negative equity:
- Rent out your property: One excellent way of dealing with negative equity is by renting out portions of your house or even the entire house. This way, you are still the owner of your property and need to address mortgage dues, but are also using your property to make an income. While renting out your house, you could consider staying temporarily at another place with a relatively low rent so that you can save up the difference.
- Increasing the value of your property: This is an excellent way of keeping the property and reducing the difference in value between outstanding mortgage and property value. However, it is important to remember that increasing the value of the property would also likely require some financial investment. Therefore, it would be a good idea to do a complete assessment of your financial situation before undertaking such an initiative.
- Reducing the outstanding mortgage: One recommended way to reduce outstanding mortgage and also consequently, negative equity, would be by using financial savings. These bridge the gap and reduce the outstanding mortgage amount. However, this is a very big step and would require a thorough financial assessment, without doubt.
- Avoid arrears with mortgage payments: An important thing to keep in mind in order to avoid negative equity is that while making payments on the mortgage, one should not get into arrears with mortgage payments. Arrears could often accumulate and cause a lot of financial distress.
These are some of the several ways in which one can cope with negative equity in relation to mortgage payments.
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