Why Do You Keep Paying Your Mortgage?

We’re five years out from the beginning of the housing market’s crash, and home values are lingering at about where they were in early 2002. Many forecasts predict the dark clouds will stay put, both because of the huge overhang of foreclosures and because the federal government has been slow to do anything effective about stopping the decline…

We’re five years out from the beginning of the housing market’s crash, and home values are lingering at about where they were in early 2002. Many forecasts predict the dark clouds will stay put, both because of the huge overhang of foreclosures and because the federal government has been slow to do anything effective about stopping the decline.

Which begs the question: Why are you still paying your mortgage?

I’m not encouraging anyone to walk away from his or her mortgage; I’m asking what keeps you paying it. I’d like to hear from you, particularly if you bought or mortgaged your house in the boom years. Let’s be frank: your investment in that home is a nonperformer, and it doesn’t show signs of picking up again for at least a few more years. What keeps you paying for it?

Tom Krettler, a broker at ReMax Unlimited Northwest who specializes in distressed properties, says that he has seen a marked increase in the number of Chicago-area homeowners who have opted to abandon their mortgage. “It was a glimmer here in the past,” he says, referring to a time when strategic walkaways were happening in Arizona, California, and other places. But this year, he notes, “it’s becoming very common.” (There are no reliable data on the number of local walkaways this year.)

Some homeowners simply stop paying, letting the foreclosure process unfold while they use what would have been the house payment to clear up other debts. Other people move out, put the former mortgage payment toward a rental, and work with the bank to arrange a short sale.

Krettler doesn’t encourage people to go this route. “It’s agonizing what you go through, and your credit takes a hit,” he says. But he can understand why some people make that choice. “They see that this recovery is going to be longer and longer, and I guess they give up on waiting. You get a job loss or your income goes down, your property taxes keep going up, and this is a situation you want to be free of. You feel like you’re drowning.”

Even people who don’t need to slash expenses—or who don’t need to move for other reasons, such as a growing family—must wonder if their mortgage has become a dead weight. Those feelings are only compounded when they confront the huge losses in home values revealed in Chicago’s annual real-estate charts.

Of course, there are many compelling reasons to stay up-to-date on your mortgage—not the least of which is the ethical obligation. “When you buy a new car, it loses value as soon as you drive it off the lot,” explains Kim Kerbis, an @Properties agent. “But nobody says you should stop paying for it, right?”

So tell me: why do you keep paying your mortgage?

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comments
3 years ago
Posted by Icarus

I keep paying my mortgage on my condo to buy time. I want to upgrade to a bigger more family friendly house so I cannot afford the hit to my credit by short selling or walking away. While my condo is underwater, I’m only wading while others are drowning because I had the good sense to buy only as much as I could afford and paid down my HELOC. To sell today I'd have to bring money to the table, more than I'm comfortable with, so I hope that as I pay down my mortgage until what I owe equals what I can get for it on the market.

To be sure, I have no delusions that the market will ever reach Boom numbers again in my lifetime.

I bought in 2003 which depending on whom you ask, was just before the Boom years or Day 14 of the boom. I never thought of my purchase as an investment meant to turn a profit. Rather, I bought into the condo-as-a-starter home philosophy that many realtards pushed back in the day.

3 years ago
Posted by buky

"ethical obligation" in light of the behavior of these banks that comment is a joke. The only ethical obligations the banks have engaged in lately is paying fines to the SEC after they were caught committing mortgage fraud.

3 years ago
Posted by Matthew Hector

Since Illinois allows lenders to obtain deficiency judgments against borrowers in foreclosure, walking away can be a very risky proposition. People who walk away in non-recourse states like California have the law on their side. The lender cannot pursue a deficiency judgment, and the temporary hit to credit scores simply isn't a deterrent.

The ethical argument is a non-starter -- we don't make ethical judgments about corporations that file for Chapter 11 bankruptcy protection. While it is possible to exit an underwater property while protecting your financial position, most Illinois homeowners aren't aware of their options. In some circumstances, it may even be possible to use the U.S. Bankruptcy Code to a consumer's advantage, restoring an underwater property to the break-even point.

In my experience as a consumer defense attorney, people do themselves the greatest harm when they take drastic steps (like walking away from an underwater home) without first evaluating their options.

3 years ago
Posted by TKrettler

Often on the other side of these transactions are the buyers who are getting excellent deals from short sales or foreclosure properties. The ones I have been working with have been buying for the long term either to live in them or to rent out and get an immediate positive cash flow. It also seems the rental market is still strong where it is becoming more financially advantageous to purchase than to rent due to the lower sale prices and still relatively low interest rates. I've been around long enough to know one thing for certain… nothing goes up indefinitely and nothing goes down indefinitely. Everything goes in cycles. Whether it is with commodities, paper stocks or real estate, it is all in the timing of the "buying and selling". Today's real estate buyers could be poised to be the next generation of real estate investors.

3 years ago
Posted by EileenChicago

I keep paying my mortgage, regardless of whether I'm underwater on it, because:

1) I can afford the payments, and it's about the same, if not less, than I'd be paying in rent, as our market has seen an increased demand in rentals, and therefore rents have gone up.

2) I have a sense of social responsibility, to not contribute further to the declines we've seen.

3) We never bought our home with delusions that we would become rich off of it. We live very basic and below our means. The plan was to have an affordable place to live, which can later be converted to an investment property once we've saved enough for our next home. So I keep paying the mortgage because I know any investment will go up and down over the short term, but over a long horizon it makes sense financially. I don't stop contributing to my IRA just because the stock market is down, do I?

1 year ago
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