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The question homeowner should ask themselves is: Should I let the bank foreclose on my property?
Let's say you have taken out a US$200,000 2/28 adjustable-rate mortgage, "ARM" (or other forms of mortgage with varying options of "zero down", interest-only payments up-front, etc) with very low rates for the first 2 years and adjustable rates from the 3rd year onwards. If this were taken out in 2005 or before, the mortgage would have entered (or soon to enter) the adjustable-rate phase by now.
If your property had dropped in value by say 10%, should you continue paying the mortgage with the re-priced rate of say, 13% p.a.?
Remember, if your property is now in negative equity (ie. value of property is lower than the mortgage loan), why should you continue to service the mortgage at such high interest rates (assuming you have no "emotional" attachement to your property)?
Bottom line: For those homeowners in negative equity now having to service the mortgage at the high re-priced rates, it is a no brainer to let the bank or finance company foreclose on the property, assuming there is no emotional attachment to the property!
August 14, 2007
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