Some people still wonder if they should walk away from their loans – to simply stop paying and let the Bank foreclose.
Others are prevented from doing so – solely by the image of their Grandfather scolding them to keep their promises to the Banks – and continue to make payments on mortgages on houses that will never (if you count 10 years or more of lost value as “never”) recover their value.
Commentators say that it makes sense to strategically default (to walk away) if the loan to value ratio is 167%. Others say 125%.
I say, if the loan is between $0 and $50,000 more than the home’s value – think about it. If the home is more than $50,000 underwater, I want a really good excuse as to why you would want to stay. If it’s more than $75,000 underwater, I want to know why you waited so long to begin not making payments.
Sure there are tax ramifications (in some – but not all cases). Sure there are credit score hits. BUT, credit scores can be rebuilt – whereas lost money is lost forever.
When confronted with the choice of making mortgage payments on $100,000 of underwater debt, or making those same payments to the kids’ college fund – I know which way Grandpa would tell you to go.