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Upside down options

I am upside down due to the market even though I went in with 20% down. I pay regularily and even pay down principle on a regular basis. Besides something catastrophic, this trend will continue indefinitely.

That being said, what are my options. I understand that as long as I continue to pay, I should have no worries from the bank and once the market recovers I'll be back on track. What about insurance. The policy is based on the purchase value which is not the current rebuild value. If I reset this policy, do I open myself to questions from the lender?

Lastly, given everything, under current market conditions and without any other debt save a car loan, is paying principle in excess of mortgage payments the best choice?

Thanks, Zeke.

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Reply to
zeke
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Unless you have a need to move soon, the fact that your house is worth less than your mortgage should have no bearing, other than the psychological feeling that you are a lot poorer. Welcome to the party.

If you have extra money, why not pay off your auto loan first.

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Reply to
PeterL

We need the terms of the loan, don't you think? I just bought a new (used) car last month and the dealership was offering 1.9% financing. Even money market after taxes can match that.

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Reply to
kastnna

I assume you are talking about a home mortgage here, and not options as in options on stock or options on commodities.

Yes, as long as you stay current on the loan repayment, and you live in the home, you are OK. If you do something else, you may trigger having the loan be called (if you rent it) or foreclosed on (if you fail to pay).

The lender will be OK as long as the insurance covers the loan value. Your bigger concern is that the cost of building materials and labor is much higher today than a few years ago, so it may cost more than the value of your home to rebuild your home. You may need to increase your coverage.

That all depends. The mathematical answer is that you invest in what returns the most with an acceptable risk level. If your home mortgage is at 5%, you can get more in stocks, bonds, and even in CDs (I just bought some 6% CDs backed by the FDIC). If your mortgage is 9%, then paying it down is a great choice since it is a zero risk 9% return (not counting tax impacts).

Some folks say you should have your home as your fortress, pay it off, and never risk it. Others say that 6% money is cheap, and paying it back is silly when you can put it at risk in the market or in a business and potentially make 10 times the return. Or save it waiting for that once in a lifetime deal. The best choice is different for everyone. It all depends on how you are wired inside.

-john-

Reply to
John A. Weeks III

You probably don't want to decrease your insurance. Repairs can cost more than new construction.

-- Ron

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Reply to
Ron Peterson

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