Many personal financial blogs have discussed on this topic, and the topic will be continuously discussed until there’s an end on non-repayment and foreclosures.
But the question still persists. Should you walk away from your mortgage? This question itself is quite unethical. If you have used anybody’s money, it’s your moral duty to repay, regardless of what kind of loan you have taken, mortgage or credit card debt.
And if you decide not to repay your mortgage, then why should you even bother paying off other loans like credit card bills, vehicle loans, student loans, and so on. Many may argue that walking away from mortgage is a better option as their house now value less than when they took a loan. What about the other things that you purchased on your card? The clothes that you purchased a month ago, not doesn’t have much value. Similarly, the car you had purchased after availing a car loan has depreciated in value. Why don’t you stop paying these loans as well?
Simply because the economy collapsed or real estate market went down doesn’t mean you don’t have to repay what you had borrowed. Well, you can walk away from it. It’s all about how ethical you are, or how strongly you believe in moral values, if any.
If you decide to walk away from your mortgage, you credit score will certainly take a hit. However, if it is already ruined, you may not care to think about it. But if you realize that having a good credit score is important in today’s society, you must not refuse to make payments on your mortgage. Many things like getting a job, renting an apartment, and getting a loan depends on how good your score is. Walking away from your mortgage will affect your score adversely. I Don’t Really Care About My Credit Score
If you aren’t able to make payments on your mortgage, you could face many legal complications. The lender has rights to foreclose your house, and sell it at current market rates.
If the amount they receive after selling your house isn’t enough to cover the debt (lent amount), the bank can come after you, legally. So, simply walking away from your mortgage doesn’t mean you are off the hook.
But I Don’t Have Money To Repay My Mortgage, What Should I Do?
There are many alternatives to non-repayment of your mortgage.
Negotiate with Lender
If you are genuinely in trouble, and don’t have money to repay your mortgage, you can negotiate with your lender. Foreclosures are loss to lenders. Hence, if you explain them your situation, and let them know you are genuinely interested in repaying the debt, with reduced rate of interest, chances are that you might avail a revised repayment plan.
Short Sell Your House
If you want to get rid of your mortgage by selling off your house, inform the lender about your idea of short selling. Short sell means selling off you house at a price lower than the mortgage owed. This price is agreed mutually by the buyer, seller, and the lender. After short selling your house, the bank wouldn’t ask you for remaining money.
Don’t do anything. If you believe your house is underwater, wait for the economy to grow or real estate prices to hike. Until then, keep making payments on your mortgage.
Lessons From Housing Bubble Burst
Until few years ago, putting money in real estate was a good investment. However, there are very few people who would agree on this now. Your investment could go down any day. I guess walking away from your mortgage comes to your mind simply because you thought of it as an investment. If shelter is what you need, it should matter whether you are paying for mortgage or paying for rent.