Deprecated: Assigning the return value of new by reference is deprecated in /data/9/1/30/99/1356425/user/1454503/htdocs/blog/wp-includes/cache.php on line 36

Deprecated: Assigning the return value of new by reference is deprecated in /data/9/1/30/99/1356425/user/1454503/htdocs/blog/wp-includes/query.php on line 15

Deprecated: Assigning the return value of new by reference is deprecated in /data/9/1/30/99/1356425/user/1454503/htdocs/blog/wp-includes/theme.php on line 505
Dave’s Investment Blog » Blog Archive » Should a Homeowner Keep a House that They Owe More than it’s Worth? YES!!!!
Dave’s Investment Blog
Welcome at » Should a Homeowner Keep a House that They Owe More than it’s Worth? YES!!!!

Should a Homeowner Keep a House that They Owe More than it’s Worth? YES!!!!

Should a homeowner keep a house that has dropped in market value to a point below the balance of their mortgage? This condition is negative equity. If they can afford their mortgage payment and if they want to increase their net worth, they should definitely stick with their home. If their mortgage is fixed for the next 5 years or more they definitely want to keep their home and stay current on their payments. Don’t listen to the talking heads on CNBC and other places that say to walk away from your home. You may lose money and do serious damage to your credit scores for years by following their advice.

Normally I write about investing in the stock market which is also an incredible investing opportunity right now!!! You should be maximizing your contributions to your 401(k) and taking advantage of the huge sale of corporate America right now. Investors rarely get to make easy money in the stock market like you can right now over the next 5 years.

However the housing market is currently having a negative impact on our economy and the investing world. People are walking out on their home mortgages. These people are not making a profitable decision for anyone except the lucky souls who acquire these homes at rock bottom prices.
So you are thinking why are you dumping your hard earned cash into a huge, money sucking void otherwise known as your home? Why should you stick it out? Because you will make money!! Let’s remember you have to live somewhere. You need shelter. If you leave you will probably have to rent something comparable. You will not save 100% of your mortgage payment unless you can live somewhere for free.

Let’s take a hypothetical example:
Joe and Mary bought a home two years ago for $500,000. They made a down payment of $50,000 and financed the balance of the purchase with a mortgage for $450,000 at 7% per year for a period of thirty years. Their monthly mortgage payment is $2,993.86 and they were happy.

Today Joe and Mary are NOT happy. They could sell their home for $300,000. They owe $440,527.26 on their mortgage. If they sold today they would owe the bank $140,527.26. They would lose the $50,000 they initially paid as a down payment plus the money they owe the bank, over $190,000 total loss of their net worth. They will also have to find a place to live. They probably will not be able to buy another house for years.

Joe and Mary read this blog. They learn the following. If their home appreciates on average over the next six and one half years at 5% and they continue to make their mortgage payments, the market value of their home will rise to $414,007.39. The balance on their mortgage will be $414,007.39. The negative equity will be gone. If they could not rent a place for less than $2,075.11 they will not have spent any additional money to overcome the negative equity. $2,075.11 is the after tax cost of their mortgage payment assuming a marginal tax rate of 35%.

If Joe and Mary stay in their home an additional 21 months they will grow their home equity by $50,000.

Joe and Mary decide to stay the course. They increase their net worth by over $190,000 in less than nine years!! They have great credit scores and are very happy!!!

If you would like me to help you with analyzing your situation, contact me at David.Buss@HeeNaluInvesting.com

If you want a great place to stay while you vacation in Sebring, FL make a reservation at Inn on the Lakes!! www.innonthelakessebring.com They have great golf packages and the food at their restaurant, Chicanes , is outstanding!!!

Have a fantastic, profitable day!!
Dave

One Response




  1. Great blog you got here…keep up the good work.

Leave a Reply

You must be logged in to post a comment.