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-   -   6 Mortgage Myths (https://www.early-retirement.org/forums/f28/6-mortgage-myths-15389.html)

brewer12345 04-27-2008 05:18 PM

Quote:

Originally Posted by Johnphx (Post 649861)
Thanks Brewer,

That is where I am at now. I hate servicing the loan month in and month out knowing I am house trapped, but there are worse places I could be. Of course isn't there a common rule about not paying interest on a depreciating asset? :o

Now lets hope that the large number of empty homes that are accumulating in my subdivision begin clearing and don't begin to deteriorate too badly.

My worst fear is that we get ourselves into a Japanese style housing deflation.

For now, I would say keep treading water and wait for things to improve. Keep your options open and take care of priorities 1, 2 and 3: kid, wife and you. In time things will get better, you will gradually amortize your loans, and you'll probably be OK. If it makes you feel better, throw an exra $100 a month at the second when you can, but don't worry about it too much.

Johnphx 04-27-2008 05:27 PM

Quote:

Originally Posted by brewer12345 (Post 649862)
Same thing a business does when the commode hits the windmill: default on its debt.

The last company I worked for did exactly that. They were still operating and still had sales, but they filed for bankruptcy and defaulted on some of their debt.

The airlines seem to do this kind of thing often. I don't know that their debt is forgiven but they don't seem to actually go out of business, as in shut their doors and cease being a company. They continue to operate and just get to start with a clean(er) slate.

If I was in an adjustable rate mortgage that was beyond my ability to pay, my lender would be willing to negotiate my terms and lower my rate (to in some cases below what someone with an 800 score can get these days). Instead I was responsible and took out a loan for less than I could afford at a fixed rate for 30 years and sit here.

The biggest fear is that if I did anything stupid like walking away, because I am not destitute I could be sued or something until I was. I don't want to take that risk.

Patrick 04-27-2008 05:32 PM

Can you rent for less than your mortgage payments? If not, it wouldn't make sense to walk away even though you are upside down.

brewer12345 04-27-2008 05:35 PM

Quote:

Originally Posted by Patrick (Post 649875)
Can you rent for less than your mortgage payments? If not, it wouldn't make sense to walk away even though you are upside down.

Deficiency judgements, trashed credit, ineligible for many jobs, etc. make this more than just a monthly cash flow decision.

Patrick 04-27-2008 05:52 PM

Quote:

Originally Posted by brewer12345 (Post 649877)
Deficiency judgements, trashed credit, ineligible for many jobs, etc. make this more than just a monthly cash flow decision.

Agreed, but that seemed to be the way that many posters were leaning.

cute fuzzy bunny 04-27-2008 06:16 PM

Quote:

Originally Posted by Ronnieboy (Post 649857)
fade in-

Your basically saying that your word and signature aren't worth the paper they are printed on.

I guess I could see if the issue involved losing a job or major medical expenses but it seems the op didn't mention any of these, just the addition of a baby.

I admit is sucks for the value of the house to go down, but if I agreed to pay an amount then I would do it.

--fade out

Okey dokey.

You sound sort of loud for someone a mile away.

Did I mention you also get a pair of shoes out of it?

haha 04-27-2008 06:37 PM

Let's start a new category to compliment the Soapbox.

Unasked for, egregious, holier than thou lectures.

Ha

brewer12345 04-27-2008 06:54 PM

Quote:

Originally Posted by haha (Post 649898)
Let's start a new category to compliment the Soapbox.

Unasked for, egregious, holier than thou lectures.

Ha

Nah, start a category for threads that aren't "unasked for, egregious, holier than thou lectures." It would be simpler that way.

Johnphx 04-27-2008 07:32 PM

Quote:

Originally Posted by Patrick (Post 649875)
Can you rent for less than your mortgage payments? If not, it wouldn't make sense to walk away even though you are upside down.

I could rent for anywhere from 1/3rd to 1/2 of my current mortgage payments, but everything from Auto Insurance to my clearance level could be affected.

Quote:

Originally Posted by brewer12345
Deficiency judgements, trashed credit, ineligible for many jobs, etc. make this more than just a monthly cash flow decision.



Well said Brewer

donheff 04-28-2008 06:53 AM

Quote:

Originally Posted by brewer12345 (Post 649862)
I would not hesitate to walk away if it were necessary. Same thing a business does when the commode hits the windmill: default on its debt.

I think Brewer is correct. These are business dealings, not family loans. In the later, your personal honor is on the line. In the former you are no different than a business trying to make a go of it. Businesses walk out on their creditors and employees every day of the week. No one faults them on it unless they committed some sort of fraud in the process. The question the poster has to evaluate is whether he will be sufficiently better off to make bailing prudent. If so, he has leverage with the bank to see if terms can be reworked. Ultimately, walking is just an option. God isn't going to judge him on this one.

maddythebeagle 04-28-2008 07:21 AM

I think others have answered, but in between paying your bills and walking away, there might be a middle ground....not paying down the mortgage might give you more options in the future as far as help from the governement or bank although, I wonder if missing some payments first might be nec....as has been mentioned here and other places, the cost of foreclosure is so high that there probably will be more options...you give it up by paying down the mortgage...

I like the question about viewing your mortgage payment like rent since you have no equity....

clifp 04-29-2008 03:57 AM

As a shareholder in Countrywide, BofA and Wells Fargo, there is good chance that I own a tiny piece of your mortgage. So I hope you pay.
I also will reiterate what I said in early posts that over many decades CA Real Estate has has had an appreciation pattern of solid 5-9% year gains bookended by a year or two of huge spurts followed by a couple of years of flat to down markets. At the top and the bottom reversion to the mean never seemed possible.

On the other hand it is pretty foolish to payback more $200,000 on property which may only be worth 1/2 that much. Plus have the option exists, to rent for 1/2 the price you are paying for a mortgage. Based on previous discussions on the forums my impression is that most CA 1st mortgages are no recourse loans. So if you walk away the only thing the bank can do is trash your credit.

How about a 3rd option renegotiate the loan with bank? I'd check with some experts in your area, but I have definitely heard that Banks would rather work with homeowners that deal with foreclosures. If for instance you could split the difference with bank between the rental would the be acceptable. I.e. if your mortgage is $2400 and rent is $1200 if you could work at a payment with the bank that was $1800 would that be acceptable?

I think you are in somewhat of the drivers seat, you are legally within your rights to mail the keys back to the bank. The bank really really doesn't want you to add to their woes.
If you ask the bank and they refuse to do anything, then if you do decide to walk away they you can a least feel like you tried to be reasonable.

Johnphx 04-29-2008 09:10 PM

Well Clif considering they hold my mortgages I suppose you might be right =)

We are socially conditioned to uphold our word and repay our debts (at least we hope that most of are), this is even more reinforced in the military culture. Your word means a great deal and alot is placed on integrity.

I believe society at large and the military esp require that these be guiding principles in order for things to function smoothly and for people to be able to make transactions of one kind or another between themselves.

As much as I can logically conclude that in the end walking away might be the best decision, I am much more inclined to pay the debt down. Its times like this when one wishes they had less of a conscience.

I am going to call Countrywide though and see if there is anything they can do. At a minimum I would like to be able to refinance my existing balance at a favorable rate and lower my payments enough to help offset the upcoming daycare costs.

It wouldn't change the overall situation of course but alleviating some of the current burden I think would at least make me feel better about it.

cute fuzzy bunny 04-29-2008 09:58 PM

Good luck finding out how much Countrywide would rather own your home vs giving you a better interest rate.

How much conscience is there in jacking up the interest rates until we see a record level of foreclosures? Because legally they can?

Well...you've got perfectly legal options too... ;)

Johnphx 04-29-2008 10:08 PM

Quote:

Originally Posted by cute fuzzy bunny (Post 650813)
How much conscience is there in jacking up the interest rates until we see a record level of foreclosures? Because legally they can?

Actually, because people agreed to let them do it. :o

I didn't. I got a 30 year fixed because the other loans didn't seem to make good financial sense.

donheff 04-30-2008 06:12 AM

Quote:

Originally Posted by Johnphx (Post 650799)
We are socially conditioned to uphold our word and repay our debts (at least we hope that most of are), this is even more reinforced in the military culture. Your word means a great deal and alot is placed on integrity.

I believe society at large and the military esp require that these be guiding principles in order for things to function smoothly and for people to be able to make transactions of one kind or another between themselves.

Those are rock solid instincts and serve you and society well. On the other hand, I think they are one sided in the case of a mortgage. this is simply a business deal. The mortgage company - who you may have chosen because of a good relationship with the bank - feels no compunction about selling your mortgage off to some repackager. They view you as a vague risk. I believe you are free to view them in the same manner.

Rustic23 04-30-2008 12:48 PM

I am not sure if this has been said, but keep in mind if the Mortgage co. forgives debt, the IRS considers it Income and will be looking for their cut.

clifp 04-30-2008 01:58 PM

Quote:

Originally Posted by Rustic23 (Post 651009)
I am not sure if this has been said, but keep in mind if the Mortgage co. forgives debt, the IRS considers it Income and will be looking for their cut.

That used to be the rule. The Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648), changed it. Now if debt is forgiven on your principal it is no longer taxed.


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