Walking Away From a Mortgage

In this economy many people have found themselves financially upside down. Unable to make ends meet there are increasing numbers of homeowners asking when to walk away from their mortgage. This question can invoke some very emotional reactions from people with or without a real estate license. When exactly the right moment is to walk away from a mortgage is different for everyone, but the simple answer to a complicated question is when you can no longer afford it.

Walking away from a mortgage for some people is a question of ethics. Regardless of what situations have presented themselves, signing a mortgage contract is an agreement to pay, and to these individuals walking away without paying that debt is totally unethical. Some believe that you should exhaust all avenues to keep up with the payments you agreed to make when you signed the contract no matter what. If it means liquidating every asset you have in order to maintain the terms of the contract then so be it.

Of course you could argue that to walk away from a mortgage is not necessarily a breach of the mortgage contract. In fact there is a lien placed on the home, seemingly building the non-payment clause into the contract. The mortgage contract states you will pay as agreed or forfeit the home, so to walk away from the home when you can no longer afford to pay as agreed seems to be following the terms of the contract precisely.

There are increasing numbers of people that disagree with bringing ethics into it; walking away from a mortgage is strictly a business decision. Many things will factor into this decision, but the bottom line is that if you do not see more income or home value on the horizon then draining all of your savings, retirement or any other assets in a futile attempt to save what cannot be saved is not a good business decision.

This is not to say that to walk away from a mortgage is easy. There are many things that you must be prepared for financially following walking away from a mortgage not the least of which being not being able to buy another home for many years. There will be a negative effect on your credit report, but the truth is that if you are seriously considering walking away from a mortgage chances are that you credit rating is already suffering. A negative credit rating will cost you more in the long run than not being able to qualify for another mortgage. Higher interest rates and premiums are but two of the ways a negative credit rating will cost you.

There are mortgage counselors and other professionals who have real estate training that can help guide you to the right decision for you if you are considering walking away from your mortgage. If it is within the realm of possibility to continue to make your mortgage payments then it is always advisable to do so; but if you know that you will not be able to maintain your mortgage payments then walking away from your mortgage may be the only option available.