Should You Walk Away From Your Mortgage?

Times are tough. When you took out a mortgage to purchase a home you might have been in a strong and stable financial position. However any number of unfortunate circumstances can lead to money problems and can make it difficult to make your monthly mortgage payments.

Times are tough. When you took out a mortgage to purchase a home you might have been in a strong and stable financial position. However any number of unfortunate circumstances can lead to money problems and can make it difficult to make your monthly mortgage payments.

The latest figures make it clear that you are not the only one that is struggling in this regard. An estimated 23 percent of Americans are “underwater with their mortgages.” What this means is that their homes are worth less than whatever the amount of money it is that they currently owe to their lenders. This is also referred to as being “upside-down with a mortgage.” There are many more Americans than that who are contemplating walking away from their mortgages. 

If you feel like you are sinking and trying to make your mortgage payments has become a terrible struggle and is taking its toll on your family life then you may be wondering if you should walk away from your mortgage. Is it in your economic best interests to do so? There is no easy answer to this question. Only you can decide.

The Internet offers calculators to help you determine if the time has come for you to walk away from a mortgage. You will need to answer a series of questions such as: Do you have negative equity in your home? How long do you plan to live in the home? Are you paying more to own versus renting the same house?

Be aware however that this type of calculator is only a tool and is a starting point. There are many variables that must be taken into account to help you decide what you should do about your financial situation. One of the biggest factors is your assessment of the future of prices in the housing market. While no one can look into a crystal ball and predict the future of housing prices, the past can often act as a guide for the future. In other words conventional wisdom often prevails when it comes to the housing market and prices. Realistically speaking housing prices are likely to increase by anywhere from four to eight percent on an annual basis.

What will happen if you decide, after much thought and research that you will walk away? The answer is that it depends upon your own unique situation. In many of the states throughout the U.S. (California being one of them) there are circumstances under which the bank or lender you deal with has no legal recourse or practical recourse to do anything to a homeowner who ceases to make their mortgage payments, other than to foreclose on their houses and make a less than complimentary entry into the homeowner’s credit report.  

Some people have more options when it comes to mortgage problems than other people do. Many individuals feel a moral dilemma about walking away from their mortgages. If you have options but automatically choose to willingly stop paying your mortgage then there is a moral element involved in this. However if you have no choice in the matter then you cannot blame yourself and this does in no way reflect badly on your character. 

Before making any final decision find out what options are out there for you. You might be surprised that there are more than you expect. For instance the more it is in your best interests to walk away from your mortgage because of your dire financial situation the more your financial institution should be willing to work with you to help you find a way to stay in your home and pay your mortgage. Loan modification is an option to look at. Often banks will base modification negotiations on the amount of money you can afford to pay as opposed to the amount that you are expected to pay.