Walk Away Or Pay That Mortgage? The Pros And The Cons

Mallory Megan — Mon, 08 Feb 2010 10:02:15 +0000

In the midst of the real estate boom, many homebuyers extended their finances to purchase a house that might have been beyond their means. With the market on fire, people were apt to buy with low introductory interest rates and interest-only loans. They believed that their income would increase to meet their payments and predicted that real estate prices would never fall. Unfortunately, adjustable-rate mortgages have adjusted and monthly mortgage payments have gone up. Couple that with the fact that income hasn’t increased, and you will see why more people have fallen behind with their mortgage payments.

As house prices diminish and with interest-only mortgages on the decline, more homeowners actually owe more on their mortgages than what their house is worth. It doubtlessly has occurred to many homeowners that this makes sense, as many are defaulting on mortgage payments as we speak.

Here’s a quick breakdown to explain the situation. You buy a house for $400,000 that is now worth only $300,000. Thanks to an interest-only mortgage, you still are in arrears for $400,000. If you eliminated this off of your balance sheet, your net worth will increase by $100,000. You’d still need a place to live, but from this point you could purchase a more affordable house or rent for a bit of time.

One huge drawback to abandoning your house. If you do, you will kill your credit rating, making it difficult or even impossible to rent an apartment, get a new mortgage, and even a job. There is a major drawback to abandoning your responsibilities. If you walk away, you will trash your credit rating, making it more difficult or impossible to rent an apartment, qualify for a new mortgage, and perhaps get a job.

New laws are out now to assist families facing foreclosure, which will encourage people to pick options other than abandonment.

Mallory Megan is employed bya debt collection company. Also she comes up with stories about consumer spending, business and finance, and debt collection.

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Walk Away Or Pay That Mortgage? The Pros And The Cons