Underwater on a Mortgage

[Hi Medlo]

Please educate me:
Why is it such a big disaster to be 'underwater' on a mortgage...that is, having your house be worth less than the balance owed on it?
I understand that it would be a bad thing if you need to sell if you need to relocate, and it's not good if you consider a house to be an investment, but if you bought it as a place to live you still have it for that purpose, at the price agreed upon.
Not to mention that markets change and it may someday be worth more.

Am I missing something here?

[Leaffan]

No, but if the house is now valued at 30% less than it was when you bought it, you're going to be paying mortgage payments for years before you reach the break-even point.

This means you won't be able to leverage equity in your home to secure other lines of credit or loans.

It's not a terrible situation if you can still afford your payments I suppose.

[Quartz]

It also isn't such a bad thing if the amount by which the property is decreasing in value plus your mortgage payment is less than the rent you would otherwise pay - essentially you are still losing money, but you're losing less money.

[Fotheringay-Phipps]

The big deal for the individual at this time is that if you are underwater, you can't refinance the loan. Since rates are very low at this time, this is a big loss for the homeowner.

[This is one of the things Obama is trying to change.]

On a broader scale, the more people who are underwater on their loans, the more people who are likely to foreclose or short sell, which depresses the price of housing generally.