Protecting Home Equity in Changing Real Estate Markets
By Karen LawsonLocal Lender Columnist
Jun 13, 2007
Nevada's unprecedented population growth contributed to a housing boom that is now slowing down. If you have an adjustable or negative amortization mortgage, refinancing to a fixed rate or fully amortizing mortgage can help reduce the risk of losing home equity due to fluctuations in Nevada housing markets.
Declining Property Value Can Affect Home Equity
You may have needed an adjustable rate or "exotic" mortgage loan to buy your home. Property values were rapidly increasing, and you weren't concerned about building equity. Now that the housing markets in Nevada are cooling off, it's time to review your mortgage terms to determine if your mortgage can potentially contribute to losing home equity. Here's what to look for:- Negative amortization: This means that you may be paying only part of a fully amortized payment each month, and that the unpaid portion of your payment is being added to your mortgage balance. Your mortgage balance is increasing, rather than decreasing, which can erode your home equity.
- Interest only: If you have an interest-only mortgage, your mortgage balance does not change. You are only paying interest each month. In the first years of owning your home, this may not make a significant difference, but eventually, it can impact your home equity if prices fall or fail to rise.
- Indiscriminate Use of Home Equity Financing: If you have a home equity line of credit, you'll want to use it carefully. New cars and vacations can wait until Nevada home values stabilize, and you acquire a substantial "cushion" of home equity.
About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds a Master's degree in English from the University of Nevada, Reno.