Should You Walk Away From Your Mortgage?

underwater mortgages This is a question that many homeowners are facing today as mortgage delinquencies rise and as many people find themselves saddled with homes that are worth less than the mortgage note. Even people who can afford their mortgage payment are considering giving up their home because of negative equity.

Some experts believe that more people should walk away simply because it makes more economic sense: On purely a dollars and cents basis, why continue throwing your money away on a house that’s worth less than what you owe on it when you can rent for half the cost and either pay off your credit cards or save the rest?

However, the decision to walk away from your mortgage is never as cut and dried as the experts portray it to be. It is a choice that has far reaching consequences and is one that you should never make until after you’ve carefully weighed all of your options. It is easiest to do this sort of analysis by making a list of pros and cons:

Walking Away Pros

  • You can probably rent for a lot less money than you’re paying on your mortgage, thus freeing up your money to do other things, like pay off your credit cards or put into savings. This depends on where you live, of course.
  • You will no longer have to worry that you’ll be trapped by your mortgage in the event that life events make it necessary for you to move elsewhere.
  • You will no longer feel that you’re throwing your money away into a home in which you have little to no stake.

Walking Away Cons

  • You will lose what is for most Americans the most important tax deduction: the mortgage interest tax deduction. Quite possibly you might owe taxes rather than get a refund.
  • You will be unable to purchase another home for anywhere from five to seven years.
  • Depending on your area, rent may be equally as expensive, if not more than your mortgage payment.
  • Putting your family (especially if you have kids) through the trauma of foreclosure will be difficult.
  • Your home may have some intrinsic value to you that can’t be calculated monetarily. This is especially true of people who are now in bad mortgages due to refinancing.

This list is by no means exclusive: it is only meant as a starting point to help you consider all of the aspects of what walking away from your home will mean.

Notice that nowhere in the above lists are there any admonitions against walking away for “moral” reasons. If it makes more sense for you to walk away, then no sense of guilt or morality should attend your decision.  Do what is right for yourself and your family, just do it with your eyes wide open.

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9 Responses to “Should You Walk Away From Your Mortgage?”

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