Ask the Money Coach: Should You Walk Away from Mortgage Debt You Can’t Afford?

Carefully consider the potential pros and cons from walking away from your mortgage

Reasons You Should:

  • Free up extra cash. Walking away from your mortgage means you simply don’t have to keep making your monthly mortgage payment any longer. And since foreclosures in many states are taking a year or longer, you’ll have what’s known as “squatter’s rent.” That extra cash available each month to cover other expenses or even to pay down debt. In fact, there are seven things strategic defaulters do with the money they save.
  • No more maintenance expenses. If you are walking away from a mortgage on a second home or vacation rental, you won’t have to worry about paying utilities, homeowner’s association dues or even maintenance costs. You are basically freeing yourself of the responsibility of maintaining the property. This doesn’t mean your actions might not be without consequence. A vacation company or homeowner’s association may still try to get you to pay. Nevertheless, by abandoning a property, you are effectively relieving yourself of this financial burden.
  • Prevent bankruptcy. If paying an expensive mortgage means you’ve been defaulting on other loans and can’t keep up with household expenses and other payments because of a lack of income, getting rid of the mortgage payment may be your only option for preventing bankruptcy. Having more cash available means you could catch up on other payments and still stay in good standing with other creditors.
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