"Should I Pay My Mortgage if the Loan Amount is Higher Than the Current Value?"
"Can I Stop Paying for my Otay Ranch Home if I'm Upside-down?"
"Should I Stop Making Mortgage Payments so the Bank Will Listen to Me?"
These are the common questions I get when talking to home owners who owe more on the home than the current market value. Let me tell you upfront, that as a licensed agent in California I cannot advise you on making that decision. But...I can tell you that many other clients of Agent619.com have made that decision to stop making mortgage payments. Here are some ideas about both sides of the question of whether to make mortgage payments on a home where the home loan is more on it than the current market value.
YES: Continue Making Mortgage Payments
- Avoid the risk of bank beginning foreclosure proceedings. (In California, the minimum time is 3 months and 3 weeks and 7 days for a total of about 4 months)
- Credit is un-affected since you are fulfilling your credit payment obligation normally
- You love your home, you love the area, amenities, location and are willing to wait many years for you negative equity to "break-even" (every negative equity of $50,000 equals 5.5 years, without mortgage payments)
- The normal mortgage payment is affordable month-to-month for the next 30 years
- Your credit qualifications has become worse since your last mortgage application and you wouldn't be able to qualify again for your current home (examples of lower qualifications: lower pay, filing bankruptcy, missed payments on other credit, less cash reserves, lower credit scores, etc). So keep the current mortgage to maintain your current standard of living
- If you do short sell you home, and keep mortgage payments, some banks are willing to issue you a loan the day AFTER Close-of-Escrow of your short sale property, so you can buy your next property immediately.
- For military, law enforcement, and secret clearance pass holders, you MUST maintain good standing with creditors to keep your security clearance
NO: Stop Making Mortgage Payments
- Stock-pile your money and pay down other existing debt
- Federal programs can still qualify you for foreclosure avoidance or short sales even if payments are missed, like HAFA or HAMP
- We've seen many cases in the beginning of the short sale process where good-intentioned homeowners would make the mortgage payment, but receive no advancement on their short sale process with the bank. After missing payments, suddenly the bank cooperated and allowed the short sale to progress.
- Why pay for an item that has lost 25-65% of it's value, dump the bad investment, save your cash and move on.
- If you stop making mortgage payments, and complete a short sale, you can use your excess cash for a downpayment or closing cost on a cheaper and better home just 24 months later (with qualifications).
- Get the banks attention by moving you from the "normal payment" department to the "emminant default" department where there is more staff experienced with this scenario.
- Debt Foregivness Act of 2007 will expire December 31, 2012. After that date, you may be responsible for taxable income on foregiven amount of the loan if you foreclose or short sale the property. Again prior to the end of the year, you shouldn't have to worry about that. Check with your tax advisor/CPA before making any decisions regarding this possible expensive taxable event. (An example scenario: If foregiven $100,000 then be get ready for $30,000 bill from the IRS, yikes!)
Read the full article here:http://www.agent619.com/blog/should-i-pay-my-mortgage-if-loan-amount-higher-current-value/
Written by Jeffrey Luzadas, CEO of www.Agent619.com, San Diego Real Estate Agent. REALTOR specializing in Otay Ranch Real Estate, Eastlake Real Estate, Winding Walk Real Estate, Sunbow Real Estate, 4S Ranch Real Estate, Poway Real Estate, Mira Mesa Real Estate, Paradise Hill Real Estate, Rancho San Diego Real Estate, and Clairemont Real Estate.