The idea of being upside down on a vehicle is not that new. This commonly occurs when a consumer makes the decision to purchase a new vehicle before they have paid off their existing vehicle. As a result, the balance of the loan on the existing vehicle is added to the note for the new vehicle. The result is that the consumer owes more on the new vehicle than it is actually worth.



Today, many consumers are finding they are now upside down on their mortgages. Unfortunately, this did not occur because they bought a new house and added in the cost of their old home to the new mortgage. This situation occurred in many cases because of the rapid rise of home values in many areas followed by the real estate market crash that sent home values subsequently spiraling downward.

In many areas, especially California, the lions share of homeowners are upside down on their mortgages and the number is rising at an increasing pace. These homeowners are primarily those who bought their homes at the peak of the housing boom. During that time house values doubled or tripled within a very short period of time. This precarious situation leaves many home owners wondering what they should do. Options are very often based upon whether the consumer is able to maintain their monthly home mortgage payments. While a few can continue to pay their home mortgages, particularly if they secured a fixed rate mortgage, this isn't the case with other homeowners who took out adjustable rate mortgages.

Homeowners who can still afford their monthly mortgage payments and who are not feeling the pressure to sell due to employment reasons may find they are better off by riding out the market decline. There is a wide belief that once the market bottoms out it will begin to rebound. If that occurs, these homeowners could still be poised to make a profit on their home once the market does rebound.

Other homeowners are not so fortunate; however. In some cases, homeowners simply have no choice but to move now rather than wait as a result of relocation or job loss. Homeowners who have adjustable mortgages may also find they are simply no longer able to afford their mortgage payments as they continue to rise. These homeowners are now facing the bitter reality of house foreclosures when they are not able to pay off their debts or refinance their home loans because of tightening loan restrictions.

Homeowners are also facing the reality that their options are reduced because they have little if any equity in their homes. The amount of equity that a homeowner has in their home is often determined by the amount of their down payment. During the housing boom it was quite common for many buyers to purchase homes with very little, if any, down payment. At the time it seemed like a good deal; however, today it is causing significant problems as housing values continue to decline.

This situation is causing more problems for homeowners who need to take out home equity loans to make needed home improvements or to consolidate higher interest debts. Even they are are amoung the handful of homeowners who have equity in their house, they are seeing lenders increasingly wary of handing out home equity loans. Just as the default rate on primary home mortgage loans are on the rise, so has the default rate on home equity loans. Quite simply, banks and lenders are no longer willing to face an increased risk when they are already holding an increasing number of defaulted loans.

In many areas, the ability to refinance has become almost non-existent. In addition to loan guidelines being stricter, but many homeowners who are upside down are learning that the lower value of their house makes it nearly impossible to qualify and obtain a new loan. In effect, these homeowners now have negative equity and homeowners are not willing to take on any more bank foreclosures.