Friday, December 19, 2008
Is it Worth Walking Away From Your Mortgage?
A recent article on MSNBC tells the story of a woman in California that made the difficult choice to walk away from her mortgage. She was able to keep up with her payments and was never late but she could not feed herself or her pet cats. So she turned her back on a debt of almost $200,000. Walking away from your mortgage should be a homeowners last resort and worst case scenario. But with the current mortgage crisis when homes are worth less than the original mortgage, some homeowners are finding this is the only option available. Experts are hesitant to advise a volunatry "walk away" since this can ruin your credit for several years. But in some states this option may make sense.
Buyers who bought houses for investment purposes rather than to live in are more likely to walk away from their mortgage.
The woman in California bought her condo with two interest only loans with high initial rates. She was able to manage her payments until she had a medical hardship. She attempted to refinance but her home value had gone down significantly so she no longer qualified for a mortgage. She sought professional advice from a company that helps homeowners walk away and decided that this was the best option for her situation. She is now renting an apartment and sleeps a lot better without the burden of a mortgage.
The negative ramifications of walking away is the damage done to your credit rating. It can take several years to restore your credit score to a level that will allow you to obtain another mortgage. In addition, housing prices may recover over time. The biggest risk is that your mortgage company may come after you for any other assets you may have or garnish your income.
Despite all the negatives, in states where mortgage companies are prohibited from suing the borrowers, the incentive to still walk away is high. Sometimes it makes sense to walk away and take aloss than to be strapped to a bad investment for several more years.
(1) Remark on Is it Worth Walking Away From Your Mortgage?
we would not be in this position if 4 years ago the banks would have worked with us to re-finance.
we tried to get a re-fi loan to cover our bills that racked up due to an accident.
all applications were rejected due to debt to income ratio. yes according to their formulas this was true, however we would have paid off all creditors and would have a payment much much less than our monthly output at that time.
so now we have a delema, we could not keep up. we are in many collections.we have 2 judgments against us. The banks are now realizing everyone doesn't fall into pre-determined slots,so now they are bailed out,what about us?
Comments by r.earl lynch from HINCKLEY, IL : Wednesday, January 28, 2009 at 10:10 AM