Real estate market is getting uglier each time I listen to the business news and personal financial disaster stories are floating up more and more frequently. I am sure this is not the last and not the worst yet a very educational first-hand experience from someone in an mortgage crisis situation (which I ran across at FatWallet forums).
- $410k home bought on 10/05
- 80/15/5 loan
- 80% 5/1 ARM @ 5.375% [$315k remaining]
- 15% 15yr fixed @ 7.5% [$50k remaining]
- 5% Down payment
- The House next door has been on the market at 290k for 1 month.Unfortunately, we bought our house at a bad time, and we are now upside down. We can afford our mortgage, and I am currently paying down the 15yr fixed down as quickly as possible (an extra $600/mo). However, I’m afraid that when the 5yr ARM is up, we’ll be unable to refinance the mortgage since we are upside down by so much.
It is a while since I checked property prices in our subdivision. I am honestly afraid to do so. I am hoping however my house is still worth about what we paid 5 years ago since real estate has appreciated only about 5% annually in our area and shouldn’t fall down too fast. If however I were in the situation like above I am not so sure what my strategy would be.
On the one hand it is important to pay out the second (high interest) loan as soon as possible. One reason is to soften the effect of higher payments on the ARM that will kick in after the ARM interest resets upwards. On the other hand, the last thing you want to do in this delicate situation is run out of savings and still not be able to pull off. Choices, choices…
Source: Upside down on house (looking ahead) at FatWallet
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