What can I do if I’m under water?
Real estate investment isn’t always successful and depending on market conditions, you may lose money. The economic climate isn’t static and it’s prudent to know your options if your investment results in unmanageable monetary costs.
I’m located in Alberta where, along with the COVID-19 pandemic, we’ve been hit with an economic recession. There are many people across the province who now have mortgages that are worth more than the value of their house. In this case, sometimes you have to consider selling and often there are additional factors that don’t allow you to hold on to a property. If you plan to move or it’s a rental property and it’s not generating income, it may be better to sell. What exactly does that look like?
Can I just hand over the keys to the bank and walk away? You can, but if you do, you’ll hear from their collections department. They’d likely require you to declare bankruptcy in order to recover assets to help pay the mortgage balance; this is a risky move if you’ve got other high value assets. You also have the option of simply declaring bankruptcy but let’s say you’re not at that stage and you want to find a different way out. The other option would be to sell your house and use that money to pay down your mortgage balance. If you have, say, $50,000 still owing after this, you’ll need to visit the bank to apply for an unsecured loan because you no longer have any security in the house. You’ll to provide your financials, show that you have some cash on hand (or some investments) and demonstrate that you are credit worthy. Finally, you’ll need reduce your expenses to the point where you can live a comfortable life while still making payments to cover this differential.
Real estate investment isn’t always a sure-fire to generate positive returns. If you in the unfortunate circumstance of owing more on your house that your mortgage is worth, please fill out the questionnaire below, and we’ll be happy to connect with you about your long-term goals.
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