We have to address this issue. Paying off your home or not. So much foolishness
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A lot of people believe they can "just walk". However, home mortgage terms were set as though the loan was FULL RECOURSE. That is, if you walk you can not only be pursued and sued to pay the amount owed, you get a 1099 for the unpaid balance (called "forgiveness of debt") when the collectors finally give up on collecting more from you, and you owe income tax on that amount.
It could be that there are so many "walks" in America that it is or will become somehow inconvenient or impossible to 1099 everybody... but there never was an intention (in most states) for provisions that upsidedown homeowners could simply "walk" without consequences.
This varies by state, stating categorically that all home mortgages are full recourse is not correct. Here is a list of non-resource states, California being the biggest:
http://wiki.answers.com/Q/Which_states_are_non-recourse_states_for_mortgage_debt
There are also other issues such as refi mortgages vs purchase but the bottom line is that non-recourse mortgages are out there.
CA is mixture state.
Original loans on personal residences are non recourse.
And the loan which forecloses sort of becomes non recourse after a non judicial foreclosure.
Therefore most seconds seem to be recourse loans.
Note, many lenders like Bank of America are not releasing liability for recourse seconds after a short sale.
Original loans on personal residences are non recourse.
And the loan which forecloses sort of becomes non recourse after a non judicial foreclosure.
Therefore most seconds seem to be recourse loans.
Note, many lenders like Bank of America are not releasing liability for recourse seconds after a short sale.
You are correct with your statement above however you have it wrong in practice. You should finance your house with a monthly variable rate based on libor. Rates are approximately 2% today. The savings you gain in interest payments can be redirected towards principal thus paying down your house faster. Would you rather pay the bank huge interest expenses or low interest expense?
We have clients who currently own title to 2 million dollar homes and are paying less than 1.75% interest. Beat that with a stick.
Bottom line, if you are going to borrow money do you want to pay 5.3% or 2%?
You would be doing yourself a favor to read a macroeconomics book that explains time value/annuitization/opportunity cost of money. 'Money now' is not the same thing as 'money later'. Especially in inflationary times (stay tuned, they are coming up) being a borrower is an enviable position.
I do agree that if you need your monthly income to pay your mortgage, you should be thinking twice about the size of it or indeed about whether to buy a home at all. No one should be committing to a large loan unless they have at least a year of living expenses set aside (in addition to the down payment).
I'm in my last house, so it's not really an asset--more like a liability. Better to let the cash work elsewhere. The house is never going to net me anything while I'm still breathing. Would it feel good to pay it off, as lots of my friends have done and like to brag about? You bet. But I know better. Sometimes things that feel good are not good for you.
So--as long as anyone wants to loan me money at 5%, I am going to keep right on borrowing it.
I do agree that if you need your monthly income to pay your mortgage, you should be thinking twice about the size of it or indeed about whether to buy a home at all. No one should be committing to a large loan unless they have at least a year of living expenses set aside (in addition to the down payment).
I'm in my last house, so it's not really an asset--more like a liability. Better to let the cash work elsewhere. The house is never going to net me anything while I'm still breathing. Would it feel good to pay it off, as lots of my friends have done and like to brag about? You bet. But I know better. Sometimes things that feel good are not good for you.
So--as long as anyone wants to loan me money at 5%, I am going to keep right on borrowing it.