It’s the nightmare of every house owner. You want to sell your house but are faced with the financial consequences of an underwater mortgage. This can put you in a problematic situation for years to come. It’s good to know that you can get underwater mortgage protection. This could save you a lot of restless nights, in the case a real estate bubble was to hit again.
What is an underwater mortgage?
A mortgage goes ‘underwater’ when the value of a house is less than the remaining debt to the bank. This is something that can happen when real estate prices drop and leaves a debt to the house owner(s) after the house sale. If the owner doesn’t have the means to do so, he might have to make a repayment deal with the bank which could take many years to pay back.
The financial crisis has caused many mortgage loans to go ‘underwater’. At one point in 2012, over 30% of all mortgages in the US were underwater. This is a huge problem and can be specifically tough on young house owners. They don’t always have money saved up to compensate for this real estate value decline.
Protect your mortgage from going underwater
An efficient way to protect your mortgage from going underwater, is to get underwater insurance. A rising amount of companies are now offering this underwater mortgage protection. AmTrust Financial Services is one of those companies, providing this kind of service since late 2013. The insurance will cover the mortgage deficit to the bank if the sale of your house didn’t bring in enough money to cover this debt.
Requirements
To be able to enjoy the perks of mortgage insurance, there are some requirements that you’ll have to meet. Most of the companies offering underwater insurance, require you to have at least 10% equity in your home. It’s not very easy to find this type of insurance for real estate in the higher price class. Most companies aren’t willing to insure houses with a value over $400,000.
The monthly costs for underwater mortgage insurances, are about $50. For this amount of money you won’t have to worry anymore about volatile housing markets.
Is it worth it?
If you are a long term thinker or your house’s value has already gone up significantly since the purchase, underwater mortgage protection is probably not for you. As the real estate market is cyclical, a recovery period will inevitably come. It all comes down to your willingness and capability to stay in your house when the market is down.
If you just bought a house and are unsure about your near future, underwater mortgage insurance might be a good solution for you and save you a lot of financial troubles.