Underwater Mortgage situation is an unexpected shock for a property owner. This may happen as an aftermath due to prolonged economic downturn or change in some demographics. When the market value of the property falls below its mortgage terms than the underwater mortgage is said to have come in play.
Obviously, this situation will never arise when buyer takes out a first mortgage.
When property owner chooses to go for second or third mortgage to finance his or her other needs, then you inch closer to underwater mortgage. In the beginning, owing to large equity built up, lender may offer you second or subsequent mortgage; however, adverse economic situation or decline in property prices in the area may quickly create a situation of underwater mortgage for you.
You have to be cautious while taking second or third mortgage, though additional equity in the form of property is available. With each subsequent mortgage, you are depleting surplus equity available to you and with some percentage fall in the market value of the property you are likely to be with underwater mortgage. Sometimes this may happen due to change in demographics - again state or local laws can cause this to happen.
Rezoning is another reason for the property to fall into the trap of UM. Property may fall into different zones like residential, commercial or industrial depending upon the plan of the city. In the event of being categorized into different zone, property may fall in value. It is possible that value goes down below its mortgage.
It's in the interest of the every property owner to prevent underwater mortgage situation for the well being of the family and to survive during terrible economic downturn.
The author is based at Ahmedabad, India. Though, professionally he is an engineer and management expert, yet he likes writing on variety of subjects such as education, health, travel, medical, philosophy, logic etc.... to name just a few.
Article Source: http://EzineArticles.com/?expert=Nikhil_B_Shah
