i can take the insults. I know there are people who feel like someone who takes out a loan and walks is doing something morally wrong… everyone has an opinion.
my take is this – in the “old” days – banks made people put down 20% – b/c they wanted to avoid people like me deciding to walk and stuffing the bank wtih the house. they figured if you put 20% down, there was enough PAIN/LOSS associated with walking that you wouldn’t do it. 20% down had nothign to do with “honor” or integrity – it was all about basically forcing you to put something into it as a way to minimize people actually walking.
recently – banks relaxed the rules, and let everyone buy a house with no mney down. so they took on all the risk. bad move. look at values now – and look at what people are doing.
to me, it’s a business decisions. if I assess all the info and decide that while I am upside down, it is advantageous to just stay put – i’ll do that. if it comes to a point where it actually makes SENSE to just dump it – i’ll do that.
I’m not trying to think like an investor. the house is not an investment. it’s a place to live. but at the same time – i don’t want to royally overpay as I watch prices decline and decline.
maybe someone can help me do the math.
I earn $140k/year. stay at home wife, 3 kids. I pay about $3200/month when you add up my P&I, Taxes, and HOA. the HOA are about $120, can’t write that off, but I can write off the majority of my loan payments as it’s a 30 yr fixed and i’m in the second year or so..so it’ smostly interest.
my house is worth say $180k by my estimates. I paid $350k. so i’m approaching 200k in negative equity. that’s not the righ tterm. i have no equity, the BANK has $200k in negative equity..
so I can rent that “bigger” house my wife wants for about $2000-2200/month.
how much do I actually “save” on my income by writing off the interest/taxes?
I think my monthly taxes are around $400/month. My monthly mortgage payments are around $2600 when you add up the first/second. my int rates are not that great – not horrid but not the greatest.
if you look at what I pay, what I can write off, and my income/tax bracket – I think I’m saving 500-600/month by writing this stuff off. so if you take my $3200/month in carrying costs, and take off the lower figure – 500, you get a $2700/month is actual cost to carry this house.
I can rent the same thing – actually something larger/better for 700 less/month. so each year I stay in this house, I’m losing $700/month.
now if housing prices were going to come back quickly, staying underwater seems like less of aproblem, but when you estimate that it may take a decade or longer before prices come back – it makes me thing that I will be eating this upside down loss for the next ten years.
so take that 700/month and multiply that out by 10 years…and then figure around then, will values be about where they were when I bought.
the downside to walking away is my credit will tank, I will wind up renting something, and it will be 5-7 years before I could buy something – but perhaps it will be that long before I’d WANT to buy anything…
a good friend of mine who owns his own business, used his original house to fund his business – HELOC. the business tanked, he coudln’t make his payments, and left his home/foreclosure. he now rents a house for less than what his old payments were, and the new house he is in is twice as nice as the one he left. in many ways, he’s better off after the “foreclosure”. he lives in a better house, pays less per month, he just can’t say he “owns” it.
but in this market – no one really owns anything the vast majority of people are holding an ownership interest in an asset that is leverage far beyond what it’s worth… so we all own debts…
to me it’s a numbers game. i like my house and am content to stay, but at some point I feel like maybe i’d just be stupid to stay and keep paying.
if I were to be able to save $700 (maybe more) per month, and put that money into an investment, or my 401k, and just rented for 10 years – who is ahead? the guy who “honors” his obligations, stays in the house, pays the mortgage every month, and figure in 10 years the house value is close to the 350k i paid, and my balance has gradually paid down over the 10 years to where there is equity in the home, OR the guy who pulled the plug, rented, and invested that 700/month over the next 10 years into a 401k, or some other investment – hell, just putting it in a hole in the ground, with no interest would net me 84000. stiffing the bank for the next 12 months and not paying the mortgage nets me another 30k…
so am I correct in thinking I realistically could be $100,000 ahead by just walking and renting for ten years?
if values came back to current levels in 10 years, and I paid my loan down over 10 years, somehow I don’t think i’d have paid off 100k when the loan is a 30 year fixed….
