Should You Pay Your Mortgage if Your House is Worth Less than You Owe

As Pinellas CDPE Realtors, people ask us all the time if “you should pay your mortgage if your house is worth less than you owe”. Except in some VERY rare conditions, we have to say that if you can AFFORD to pay your mortgage, you SHOULD pay your mortgage!

Taking out a mortgage is a legally binding contract that you made with a lending institution. Just as YOU did not know that the value of your home would necessarily go down, the bank loaned you the money in good faith that you would pay it back. They based this on your ability to repay the loan, as well as your past credit history and other factors (this is where those pesky underwriters come in in the house buying process!)

Because we are Pinellas CDPE Certified (Certified Distressed Property Experts), we hear MANY stories of Tampa Bay people who are not currently ABLE to make their payments. They may have had a sickness, lost a job or had another catastrophe like a sinkhole. These people are eligible to try and effect a short sale on their house (the bank accepting less than you owe on it in return for a “paid in full” judgement). As we spoke about in our previous post, How Long Will A Short Sale or A Foreclosure Stay On Your Credit , doing a short sale or even dragging out to a foreclosure can have a severe detrimental effect on your credit score.

You were ALWAYS paying your mortgage house that was worth less than you owe!

So say you have a house that you bought in 2005 for $200,000 and the value has decreased 30 percent. Now you owe $160,000 (you did put 20% down right?), for a house that is only worth $140,000. I KNOW, this is not a great situation, but you were ALWAYS going to spend more than your house was worth….WHAT?

Many people who buy a house have a mortgage and they use time to pay for their home. A $200,000 home with a 30 year mortgage will cost you about $1,500 a month including PITI and mortgage insurance*. So, $1,500 X 12 X 30 costs $540,000 (these are just example numbers, PLEASE contact a mortgage person for an exact amount!)

So in actuality, you were ALWAYS going to pay more for your house than it is worth, you just knew it going in so it didn’t feel so bad.

I have heard in real life and frequently on the internet that you should just give back your keys and walk away OR that you are foolish to pay more than it is worth and you should stop paying your mortgage. As a rallying cry for the disenfranchised, this is a good one. As practical advice for someone who might want to buy another house, or a car, or pay for tuition, get a new job or any of the other hundreds of things they check your credit for these days, not that much.

If you have questions about you should pay your mortgage, if your house actually IS worth less than you owe, or just want to talk with someone who has been trained in these matters, give us a call today for a free consultation to go over YOUR needs! 727-366-0324

*here is the reference for the numbers we used in the example

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