“We owe $550,000 on our house, but it’s worth $425,000. It’s going to be many years before we ever have a cent in equity. We can pay the mortgage, but it’s a huge drain and we’re considering getting out from under this problem and letting the home go. Does this make us bad people?”
Answer:
What you’re talking about is called strategic defaulting on a loan by choice.
Does that make you bad people? No. Is it wrong to do? Here are arguments on both sides:
–Wrong To Do–
You made an agreement with your bank to pay the mortgage. It’s wrong to voluntarily break that agreement and not pay. Shame on you.
–OK To Do–
You and the bank made a mutual agreement that you would pay the mortgage or, if you did not, the bank could foreclose. A contract is a contract and it’s all in the contract. Besides, the bank pays 1% on savings but charges 5% on a mortgage, the difference being necessary profit plus a risk premium in case you default.
