There has been a lot of talk in the news lately about people walking away from their mortgage. It seems like a drastic step to take, and I get concerned when these stories make it seem as though walking away is a good idea for any homeowner. The New York Times has a review of a book, Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth? that you should look at if you are considering this option.
The author, Professor Brent White, uses these guidelines in deciding whether or not walking away makes sense for you:
According to his book, “it probably does not make financial sense to default on your mortgage” and walk away under these circumstances:
1. You’re less than 10 percent underwater (you owe $100,000, for example, and your house is worth $95,000); or
2. Your monthly cost of owning is less, or only slightly more, than the cost of renting. In other words, the net cost of owning your home (your monthly mortgage payment plus all other ownership costs minus any tax breaks you get from owning) is less, or only slightly more, than the cost of renting your home or an equivalent home (Professor White details how to make such calculations in the book); and
3. You don’t need to move.
In addition, Professor White writes that it probably doesn’t make sense to default if you fit certain other conditions, like you “have a particular need for credit,” feel that your house is worth what you paid or you’re employed and know for certain that your credit score affects your employability, among other conditions.
He writes that it may make financial sense to default under these circumstances:
1. You’re more than 10 percent underwater; and
2. You’re paying significantly more on a monthly basis than you would to rent a similar home; and
3. One or more of the following factors applies: “you’re struggling to make ends meet,” you’re using your savings or retirement money to make mortgage payments, or you need to move for a new job.
The fact is, if you decide to walk away from your mortgage, there can be heavy consequences.
Of course, another option for keeping your home if you have gotten behind in your payments, is Chapter 13 bankruptcy. You should talk to an attorney about your options.
You can read the rest of the article here.