January 27, 2010
The New York Times has run a couple of articles in recent weeks about whether it makes sense to walk away from a mortgage that is bigger than the house is now worth. In a recent paper cited in an article on Sunday, “Underwater, but Will They Leave the Pool?” a University of Arizona law professor, Brent White, explained how the vast majority of underwater homeowners continue to make mortgage payments even if it might make more financial sense for them to strategically default and walk away.
One reason is that figuring out whether to stay or walk requires calculations too complicated and time consuming for the average homeowner to perform. (View the paper to see the calculations.)
For those who don’t want to do the calculations themselves, the online “Does It Make Financial Sense To Walk Away & Rent?” calculator at YouWalkAway.com can help.
Just enter in your home’s value, what rent you would pay for a comparable home, your annual mortgage tax savings, your housing debt and mortgage interest only payment, how long you plan to stay in your home and expected depreciation or appreciation of your home, among other figures. To estimate your home’s value, the site Zillow.com and this Home Price Calculator can help. To estimate depreciation or appreciation, the average of how much your property would go up or down over the designated years you would plan on staying in the home, you may want to stick with the historical appreciation rate of around 3 to 4 percent, Professor White said.
The calculator will then tell you how much you’ll save or lose by walking away. You’ll need to decide whether the savings, if any, are worth walking away. In making your decision, you may also want to consider foreclosure costs and the impact on your credit as well as other factors in the equation.
According to Professor White, even if it would make financial sense to walk away, many people don’t because of emotional constraints, including the desire to avoid shame and guilt as well as an exaggerated fear of the consequences of foreclosure — emotions encouraged by everyone from the government to the media. “This moral norm is perpetuated by all kind of institutions and individuals,” Professor White said.
How much would you save or loss if you walked away? Will you stay or walk?
The New York Times has run a couple of articles in recent weeks about whether it makes sense to walk away from a mortgage that is bigger than the house is now worth. In a recent paper cited in an article on Sunday, “Underwater, but Will They Leave the Pool?” a University of Arizona law professor, Brent White, explained how the vast majority of underwater homeowners continue to make mortgage payments even if it might make more financial sense for them to strategically default and walk away.
One reason is that figuring out whether to stay or walk requires calculations too complicated and time consuming for the average homeowner to perform. (View the paper to see the calculations.)
For those who don’t want to do the calculations themselves, the online “Does It Make Financial Sense To Walk Away & Rent?” calculator at YouWalkAway.com can help.
Just enter in your home’s value, what rent you would pay for a comparable home, your annual mortgage tax savings, your housing debt and mortgage interest only payment, how long you plan to stay in your home and expected depreciation or appreciation of your home, among other figures. To estimate your home’s value, the site Zillow.com and this Home Price Calculator can help. To estimate depreciation or appreciation, the average of how much your property would go up or down over the designated years you would plan on staying in the home, you may want to stick with the historical appreciation rate of around 3 to 4 percent, Professor White said.
The calculator will then tell you how much you’ll save or lose by walking away. You’ll need to decide whether the savings, if any, are worth walking away. In making your decision, you may also want to consider foreclosure costs and the impact on your credit as well as other factors in the equation.
According to Professor White, even if it would make financial sense to walk away, many people don’t because of emotional constraints, including the desire to avoid shame and guilt as well as an exaggerated fear of the consequences of foreclosure — emotions encouraged by everyone from the government to the media. “This moral norm is perpetuated by all kind of institutions and individuals,” Professor White said.
How much would you save or loss if you walked away? Will you stay or walk?
Closed November 2010