Underwater on Your mortgage? Thoughts to Consider
In the fourth quarter of 2009 another 600,000 homeowners found themselves “underwater” or owing more on their mortgages than their homes were worth. In fact, the total number of households in this situation is now over 11 million people or 24 percent of all properties that carry a mortgage. This information, reported by First American Core Logic, a real estate research firm, tells us that many people are still really struggling.
The first choice for many homeowners in this situation is to try to restructure their existing mortgages. However, this can be a very long and painstaking process and many people find that they do not qualify. As a result, more and more people are thinking about walking away from their existing homes and mortgages.
Aside from the moral considerations, which are great, what are the points you need to consider before you think about walking away from a mortgage?
First, you need to understand that this is a huge decision. It might seem like this option would solve a lot of your problems, but in reality, it generally just adds more. Probably the biggest impact is that you will not be able to get a new mortgage for quite some time — five years is typical. This means you need to prepare to be a renter for at least that amount of time.
Your credit score and record will be adversely impacted for about seven years. During that time, your ability to get any other kind of loan will be negatively impacted. Car loans, assuming you can get them, will be at a very high interest rate. Same for any other type of consumer loan. Finally, there may be adverse tax implications as well.
Walking away from a mortgage is certainly not without its costs. If your financial life is going to be impacted for five to seven years anyway, it just might make more sense to hang in there and keep making the mortgage payments. No one can accurately predict what the real estate market might look like in 2015 — perhaps by then your situation could be dramatically different.
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