Walking Away From Your House Is Not The Best Solution, Even With The Real Estate Crisis
In the middle of the real estate boom, a large amount of homebuyers extended themselves financially to purchase a house that might have been beyond their means. With the market on fire, people were likely to purchase 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. Sadly, 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 are lagging behind with their mortgage payments.
As house prices decrease and with interest-only mortgages diminishing, more homeowners in reality owe more on their mortgages than what their house is truly worth. It obviously has occurred to many homeowners that this makes sense, as many are defaulting on mortgage payments as we speak.
Quick breakdown to explain the situation: you purchase a house for $400,000 that is now worth only $300,000. Thanks to an interest-only mortgage, you still owe $400,000. If you erased this off of your balance sheet, your net worth will increase by $100,000. Granted, 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 walking away from your house. If you do, you will destroy your credit rating, which makes it hard or even impossible to rent an apartment, get a new mortgage, and even a job. There is a giant 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.
Luckily, new legislation is out now to help families that are facing foreclosure, which will encourage people to pick alternative routes other than abandonment.
Mallory Megan is employed by a company. Also she writes stories on business, finance, consumer spending and .
