Your Housing Expense Too High? No Problem, Just Walk Away From Your Mortgage!

Tuesday, November 22nd, 2011

Just hit the road. Party-on Dude. That’s what 12% of Americans did in February (2010) according to Morgan Stanley Research. Now, these folks may not be who you think they are. They are not the unfortunate couple with several kids who both lost their jobs when the local factory closed. Nor are they the homeowners who are unable to pay their bills because of a sudden, life-changing injury or illness. While it’s true that medical bills are the number one reason for bankruptcy in the USA but that is a blog for another day. No, We are not talking about the unlucky or unfortunate, or the hard-working Americans that make this country the great place it is. The bunch of people I refer to here today are a whole different group altogether.

The group I am discussing here are those amoral, or is it immoral, or perhaps “unethical” is the right word, maybe all three? Anyway, these are those folks who actually have no problem paying their bills; no problem paying their mortgage, but they have decided, for strategic (read selfish) reasons, that they don’t want to pay their mortgage anymore. Maybe they are upside down in their house value, or maybe they just don’t feel like paying a large payment any longer, or maybe they don’t see it providing the outrageous returns (ROI) they think they are entitled to. When did our homes become investment vehicles anyway?

For the record, you home is not an investment; and its value is not guaranteed to go up. Ask any professional financial advisor, and they will tell you the same thing. Your home is your home, it is that safe, warm and friendly place where you keep your spouse and children (if any). Repeat after me, we do not gamble with our one and only safe, warm home. By definition our investments are risky that’s why we get a greater rate of return on them (supposedly) than on other, risk-free investments like U.S. Government Securities (Treasury Bills, Bonds and Notes). Your home is not an ATM. The goal is not to suck the equity-life out of it as if you were some sort of financial vampire and it your victim.

The goal is to pay-down or even, be still my beating heart, to pay-off the mortgage(s) and then and only then, when you are 62.5 years old, to refinance it with an FHFA insured Reverse Mortgage. Now you will get most of your equity back either in one lump sum (all cash) or as a monthly annuity AND you retain the right to live in your home, mortgage-free for the rest of your life! All you have to do is maintain it and pay the taxes and insurance and you will have a free place to live in and your equity in cash for the rest of your life. Is this a great country or what? However, you cannot do this as part of your retirement plan if you have no equity or if you walked away from your home in a strategic default that recently ruined your credit rating, nor should you be allowed to.