That is a mistake, especially if the homeowner plans to live in the home for several more years. Aside from legal problems and a credit rating that would keep them from buying a home or a new car, they lose money in the long run.
Consider a home bought for $500,000 in 2006 with a $50,000 down payment. Now the home is worth $375,000. If the owner walks away, the down payment and the principal payments are lost.
Historically, housing prices rise over time by 6 percent a year, according to the National Association of Realtors. Prices hit bottom in August of 2009.
To walk away now would be almost like selling at the bottom of the market. But if housing continues to recover at a modest 5 percent a year, after six years, the owner would break even, according to Smart Money magazine.
The $500,000 home would be worth $610,835 in 10 years and $1.3 million in 26 years when the mortgage is paid off.
Those who walk away now will also have to pay higher prices for a home by the time their credit rating allows them to buy again. In the meantime, renting a home will cost more with each succeeding year, while fixed-rate mortgage payments stay the same.
The case for staying with a mortgage is better than presently underwater property owners think it is.
Home worth less than the mortgage?
May 7, 2011 By Leave a Comment