Question of Finance: Should we hand back the keys to our house?
Q MY wife and I bought our home two years ago utilising a 100pc mortgage.
However, from what I understand we are now in negative equity as our house is only worth about three quarters of the mortgage. We bought it with the intention of raising our family there. Like most people we are finding things challenging financially, but we are employed and able to manage.
We've heard lots of talk on the radio and are now wondering if we should hand back the keys because of the negative equity?
A Negative equity only affects you in the short-term if you are actually planning to sell your house and it would appear that this is not your immediate intention. The critical issue is affordability.
What you need to ask yourself is can you afford the monthly repayments?
If, as your question suggests, you can, then while negative equity is not ideal, you really don't need to be too concerned as history would suggest that by the time you do want to sell the property market may have recovered and you should have some equity in the house.
Rather than make any rash decision, I would advise you to understand and be aware of the impact the economic downturn is having on your financial situation and as a result address any monetary issues as they arise and budget accordingly.
I would recommend that you establish a household budget in an effort to identify areas you could be spending less on or saving more on.
It is important that you work with people who are experts in the area personal finance -- whether it be your local credit union or other financial institution -- your local manager can provide very useful tips as to help you effectively manage your financial affairs, including reviewing fixed rate options and ensuring you have the right insurance for you in place.
So at this point I think handing back your keys would be an extreme and unnecessary measure, and remember you would still be responsible for any difference between your outstanding debt and the proceeds from selling your property.
Your primary concern right now should be on keeping a watchful eye over your finances and put that household budget plan into action.
Kurt Kelly, Manager, Blanchardstown & District Credit Union