Help For An Upside Down Loan

One of the worst financial situations to be in is to have an upside down loan.  This is a loan in which your collateral, the house, car, or other item, is worth less than the balance of the loan you used to purchase it.  It is very common for a consumer to have an upside down car loan unless they make a substantial down payment.  As soon as the customer drives the new car off the lot the value of the car decreases by several thousand dollars because it is now a used car instead of new.  Most people don’t realize they are upside down in their car financing at this point because very few people try to resell a car as soon as they purchase it.  Usually within about a year, enough of the loan has been paid off that the balance comes into line with the value of the car and the owner is no longer upside down.

The same thing happened to millions of families in the recent real estate bubble.  Everyone thought home prices would continue to rise so they bought more house than they could afford and banked on the possibility of selling it at profit if they couldn’t make the payments.  Unfortunately, real estate values plummeted instead and these families were left with upside down loans that they had no hope of paying and if they tried to sell the house they would have to come up with several thousands of dollars just to get out of the house.  This is really the problem with the real estate crisis, people owe more on their homes than they can hope to sell them for so they are stuck.

Many lending institutions are starting to realize that it would be better to get some payment for the home instead of nothing so they are starting to restructure the loans.  Japan had this same problem and they have dealt with it by extending the life of mortgages.  Now it is not uncommon to obtain a 50 year mortgage and there are even ones as long as 99 years.  Of course the lending institution need some guarantee the property will hold its value so these would not be available for anything other than well constructed, stick built homes.  But if the structure qualifies it can decrease the payments while the owner waits for prices to come back in line.