LTV - The Key to the Underwater Mortgage

If you're wondering whether or not you're in anunderwater mortgage. And this LTV stands for "Long
underwater mortgage, the key is to understand yourTerm View."
loan to value, or LTV, ratio. The LTV reflects howBecause if you're in an underwater mortgage, you've
much you owe as a percentage of the total value ofgot some decisions to make, and these decisions will
your house.have some long-term implications. If you are near the
So, for example, if you originally took out a $130,000end of your mortgage's term and/or if you are
mortgage on a house that was appraised at $150,000,currently less than say 5%-10% underwater and if you
your LTV ratio would be 87%. In other words, youcan continue making mortgage payments, you may
would then owe 87% of what the house was actuallychoose to stay in the house and ride things out.
worth-a win for you once the mortgage was paid off,Just don't count on property values rising any time
provided that the property value didn't change. Which,soon. Things are going to get worse, and maybe much
of course, never happens, does it?worse, on that count before they get better. You may
Throughout the 1990s and the early part of the nextnever get your equity back!
decade, LTVs just kept getting better and better forBut if you've only got 5 to 10 years left on your
homeowners because property values kept rising.mortgage you've already put well over $100,000 into
Housing mortgages were rightfully seen as one of thethat investment. In that case, you need to decide if
best investments a family could make. After all, sayyour mortgage is actually just an investment or if
you bought that $150,000 house with that $130,000you're really planning on living in or renting out your
mortgage in 1990. In 2006, that same house mighthouse for a very long time. If your mortgage was just
easily have been appraised at $200,000!an investment, you may or may not decide to stop
Now, let's say you had the income to pay off $65,000throwing good money after bad.
of your mortgage in those 16 years and still owedSo what we suggest you do is to research your
$65,000. Your LTV would have improved to 32.5%!options. A short sale and a foreclosure have different
And that kind of thing is exactly what happened forbenefits and different negatives to each of them. For
millions of homeowners throughout the United States.one thing, a short sale at the very least delays a
That's why home equity loans were so common-ifforeclosure while you're living in your house
your LTV was going to just keep improving, why notmortgage-payment free!
take out a home equity line of credit or even a secondThe other thing we strongly suggest is that you look at
or third mortgage, right?what to do about your underwater mortgage as a
But what if housing values fall? Suddenly that LTVfamily business decision. Add up the numbers and act
doesn't look very good anymore. That number keepson those numbers and what they mean for your
rising until your value is less than the amount youfamily.
owe-and your mortgage is underwater.Yes, you're going to have a lot of emotions about
That's what has already happened to 24% of USthis-but don't let those emotions drive your decisions!
homeowners since the real estate bubble broke inThat's where both kinds of LTV come in-looking at
2007. Now, we could get into the story of why thatwhether or not it's worthwhile to keep going with your
happened to us-and we do elsewhere in our blog andunderwater mortgage and taking the long view of
on our website.what you really want for your family 10 and more
For the moment, though, we want you to concentrateyears down the road!
on a different kind of LTV as you're considering your