“A nice lady told me that she and her husband have been spending the money that their house “made” for the past 7 years. They now owe double the mortgage that they originally put on the house, but the house is “worth” three times as much. Based on the area and date of purchase, I estimate that they mortgaged 300k, spent another 300k of their equity, and now sit on 900k of nominal equity (and of course owe 600k). They used the income so she could stay home with kids, and he could set up his own business.
However, the wife has recently had to take a job… because the husband is getting very worried that values may contract soon, and this means they will need to start paying down the mortgage… and means no more HELOCing.”
– ‘The Poster Formerly Known as Anonymous’, at VREAA, 17 Jun 2012 11:54am
If you have a $300K mortgage on a $900K house, and housing prices drop 33%, you lose half your equity.
If you have a $600K mortgage on a $900K house, and housing prices drop 33%, you lose all your equity.