One fourth of local home borrowers under water: reportTopic: Mortgage
A quarter of Chicago-area homeowners with mortgages owe more on the loan than their property is worth, as local home prices continue to fall.
At the end of the fourth quarter, 385,780, or 25.4%, of the area’s 1.5 million homeowners with mortgages had negative equity, according to a report released Tuesday by CoreLogic, a Santa Ana, Calif.-based housing-data firm.
An additional 80,048, or 5.3%, had less than 5% equity, or what’s known as “near negative equity,” the report said.
The number of local negative and near negative equity homeowners increased compared to the third quarter, when 342,741, or 22.2%, of the area’s mortgages had negative equity and 77,414, or 5%, had near negative equity.
Falling home prices are the main culprit, trapping borrowers in their homes, unable to move out or sell unless they write a check to their lender or work out a so-called short sale. The Standard & Poor's/Case-Shiller index of Chicago-area single-family home prices declined for the fourth straight month in December, hitting its lowest level in nearly nine years.
“Until the high level of negative equity begins to recede, the housing and mortgage finance markets will remain very sluggish,” CoreLogic Chief Economist Mark Fleming said in a news release.
In Illinois, 440,258 or 19.7%, of the 2.23 million homeowners with mortgages had negative equity and 110,570, or 5%, had near negative equity in the fourth quarter.
Nationally, 11.1 million, or 23.1 %, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter, vs. 10.8 million, or 22.5%, in the third quarter, CoreLogic said.
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I would pay the mortgage down early, wihutot relying on the renters covering the payment. That will protect you in the event that you can't get renters for a while (economic downturn or some other issue you can't control) or interest rates going sky high. You will get a far better return if you reduce your interest costs than you would if you invested the money. Here's why.Say you borrow $ 100 000 at 6%, with repayments of $ 150 a week. Over 30 years, it will cost about $ 116 000 in interest. That's on top of the payments, so adding the principle to that means you've spent $ 216 000 to pay off $ 100 000. I'll just guess (you haven't told us how much extra you'd be adding to the mortgage) that you pay double repayments, which would take repayments to $ 300 a week. That would clear the mortgage in a little over 9 years, and only cost about $ 130 800 to do so. That's only $ 30 800 in interest. If you instead invested that extra $ 150 a week ($ 600 a month) at 4% interest for 30 years, you'd have over $ 416 000 on paper, but about a quarter of that at least would go in tax. That investment would reap income, but it would be taxable income. So you'd probably come out with an effective return of about 3%, which would be just ahead of inflation. So you'd be left with about $ 350 000, minus the $ 116 000 you've paid on interest, leaves you with a return, after 30 years, of $ 234 000. Taking into account inflation, the value of this after 30 years would be much less. It would probably only be worth about half of that, or $ 117 000. However, paying the homeloan out in 9 years frees you to put the entire amount (rental income and personal contribution) into an investment. That makes it $ 1200 a month over 20 years at $ 393 962 before inflation, or just under $ 200 000 in today's dollars. That's not including capital gains on the investment property.I'd pay the mortgage out early, to reduce your debt burden, and then consider buying another investment property. You'd be better off in the long run.Best wishes
Paying off your car may not raise your score like you think. Your credit score DOES NOT go up just besucae you pay off debt. It depends on what the amount was.Having minimum monthly payments raises your score.You now have property taxes and insurance that will be figured as monthly debts, instead of you car payment.You wiped out your bank account to buy the house for cash, you may not be able to get the loan. You now have no reserves..You dont provide enough information here to qualify you for a loan.Did you try putting $ 6,000 down and getting a $ 10,000 loan on the purchase?? It probably would have been a better loan than trying to get the equity loan now.Assessed value means nothing, did you have the house appraised ?? Hopefully it will all work out for you, but I'm not sure that you did this in the right order.
I had no idea how to approach this before-now I'm locked and loeadd.
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