I’m no longer underwater on my mortgage, which lifts a great burden off my shoulder. However, deep down I wish my neighbors would stay underwater on their mortgages if that means they’d stay put. The fact that so many of us owed more on our mortgages than the homes were worth had a mixed effect on my neighborhood. Some neighbors went into foreclosure or sold their homes with a short sale, but others stuck around so they didn’t ruin their credit scores.
According to a recent article by CNBC, 4 million more homeowners are now above water on their mortgages. Even though I don’t have negative equity in my contemporary Florida home, I still “lost” a lot of money in the quest to be right-side-up on my mortgage. The fact is, I paid a lot at a higher interest rate before refinancing to a lower rate. I made a lot of financial sacrifices to be able to pay down my mortgage. As a homebuyer who purchased during the housing bubble and stuck it out, it now makes financial sense for me to remain in my home. Still, it doesn’t erase the fact that buying a home during a bubble was a financial mistake.
Declining home affordability
If I sold my home and moved, I’d have to either pay extremely high rent or purchase another home. According to CNBC, double-digit gains in home values is giving homeowners more equity but making it less affordable to buy. We have a 2.75 percent interest rate, but we’d lose that if we moved. Another article by CNBC, said prospective buyers are being hit by “affordability shock.” In fact, RealtyTrac revealed the house payment for a typical 3-bedroom home at the end of 2013 was 21 percent higher than the same month in 2012. The study looked at median-priced homes in 300 counties in the U.S.
Living in an expensive market
The CNBC article on affordability shock pointed out the values in the Tampa area went up 16.4 percent with the median price of about $135,700. It costs a lot more to live in San Diego, Calif., where the median home price is $442,500, but people also make a lot less money in Tampa. If I moved to another part of the country, I wouldn’t have nearly enough equity to purchase a similar home. On the other hand, people moving to Florida from California can pay cash for the homes that seem relatively inexpensive to them. I come out ahead by simply staying put.
Paying off our mortgage
When we were underwater on our mortgage, I paid $300 to $500 extra a month so we’d have equity in case we needed to move. I also wanted to be mortgage free by the time we retire. At this point, we only owe $90,000 on our home with 13 years left to pay on our mortgage. Being underwater gave me the kick I needed to stay on track. Now that we are no longer underwater, I’m not as motivated. However, I think about how the property taxes may go up in the future. Even though I can’t predict the cost of property taxes, I doubt the increases will be as significant as the recent hikes in rent costs.
If we purchased another home at this time, I know we would be taking part in the same cycle all over again. We’d end up paying too much for a home. The value would most likely go down as soon as mortgage rates increase, popping yet another housing bubble. Although it’s tempting to buy a step-up home in a better area, I’m not going to jump into real estate only to drown in mortgage debt again.
More from this contributor:
Paying Extra on our Mortgage Put us Deeper in Debt
Using my Roth to Pay off the House
3 Stupid Moves I made to Get out of Debt