Home worth less than the mortgage?

If they had to be sold today, almost a quarter of American homes would bring less than the amount of their mortgages. Some of these mortgage holders decide to walk away from their homes even if they can afford to make the payments.
That is a mistake, especially if the homeowner plans to live in the home for several more years. Aside from legal problems and a credit rating that would keep them from buying a home or a new car, they lose money in the long run.
Consider a home bought for $500,000 in 2006 with a $50,000 down payment. Now the home is worth $375,000. If the owner walks away, the down payment and the principal payments are lost.
Historically, housing prices rise over time by 6 percent a year, according to the National Association of Realtors. Prices hit bottom in August of 2009.
To walk away now would be almost like selling at the bottom of the market. But if housing continues to recover at a modest 5 percent a year, after six years, the owner would break even, according to Smart Money magazine.
The $500,000 home would be worth $610,835 in 10 years and $1.3 million in 26 years when the mortgage is paid off.
Those who walk away now will also have to pay higher prices for a home by the time their credit rating allows them to buy again. In the meantime, renting a home will cost more with each succeeding year, while fixed-rate mortgage payments stay the same.
The case for staying with a mortgage is better than presently underwater property owners think it is.

It’s a fact: Home prices rise over time

The marvel of the 30-year mortgage
Real estate prices have always had their ups and downs, and in the last year or two, they have certainly been in a down cycle. Over time, however, the median price of a home in the United States has consistently risen.
In the 30 years from 1968 to 1998, the median home price rose from $20,100 to $128,400, according to the National Association of Realtors. Anyone who stayed with their 30-year mortgage during this period was a big winner.
After only five years, the price of the $20,100 median home rose, on average, to $28,900.
The median price in 1978 was $48,700, and by 1988, it was $89,300, which means very significant gains were made within 10 and 20 years.
The NAR study shows that the average annual price increase in the 36-year study, from 1968 to 2004, was 6.4 percent.
What does all this mean now?
This is such an exciting time for home buyers!
First, while prices are no longer falling in most parts of the country, there are still many bargains available.
As prices recover more, buyers will find that the value of a home bought in 2010 will probably increase at a greater percentage than the 6.4 percent average. That’s because they bought their homes for less than they were actually worth.
While mortgage interest still hovers at 5 percent, buyers will be able to lock in this low rate for 30 years .
That interest rate won’t be available much longer. If you are a buyer, don’t take too long to make a decision.