Should We All Just Stop Paying the Mortgage?
I've been recovering from surgery recently, so that has given me the opportunity to do a lot of thinking on my sick bed. And with the recent turmoil in the economy, plus a focus on the housing market, I couldn't help a certain thought from bubbling up in my mind day after day. It's not responsible; it's not even fair; but I do have to wonder…should we all just stop paying the mortgage? (See also: How to Refinance Your Mortgage)
From what I understand, the $700 billion bailout plan has some provisions in it that will help struggling homeowners. John McCain also recently talked about using $300 billion of that money to "buy back" bad mortgages to help the struggling homeowner negotiate a decent, fixed rate. They may even renegotiate the cost of the mortgage, so you only pay what your home is now worth, not what you actually owe. Sounds great, right?
But it got me thinking…what about the people who did everything right? Take someone I know well — me. I bought my house almost seven years ago. I stayed well within my means and avoided any adjustable rates or sub-prime loans. I got myself a nice, traditional 30-year fixed mortgage at a good rate. I even got the homebuilder to pay the closing costs without rolling them into my loan.
Now, after being a homeowner for seven years, I am proud to say that I have NEVER missed a mortgage payment. Ever. Sure, times were tough on occasion. Sometimes I would pay the mortgage a few days late because there just wasn't enough cash in the bank. But the mortgage was paid, even if it meant staying home every night and eating Ramen occasionally.
What's more, I never used my home as a bank account. Even when the home was worth more than we paid for it (ahh, remember equity?) I never refinanced. I never got a home equity loan. I just stayed the course, knowing that after about five years my growing family would have some ready funds available to upgrade to a bigger home. (See also: Things You Should Know Before You Buy Your Second Home)
Well, all those plans were shattered. Now, my home is worth 15% less than I paid for it. I will be lucky if I break even when I sell it, considering the dreadful market and the associated costs involved in selling a house. My wife and I are even thinking of renting it out, and renting a bigger place for ourselves. With the market the way it is, we can rent a house twice the size of ours for the same price as the mortgage.
But here's the big question. Should we just stay in the house and stop paying the mortgage completely? An article I recently read by Peter Schiff seems to confirm my thinking. Let's look at the pros and cons. First, if we stop paying the mortgage we know we won't be kicked out. There will be a moratorium put on foreclosures, so we could quit paying our largest bill and put that money in the bank, ready to use to buy a new home.
Second, as we have now stopped paying our mortgage we would fall into the category of "struggling homeowner." Which means, ladies and gents, that the government will swoop in and help us out! Yep, as unfair as it sounds, we'll get help if we suddenly become irresponsible. My mortgage would be renegotiated, probably at a lower rate, and for the current price of my home. Plus, I'll have saved thousands on mortgage payments until that happens. It could take six months…that's around $10,000 we'll have saved.
The only downside I can see would be a tarnished credit rating. But so what? For the amount of money I'm saving, it seems well worth it. And I'll still keep my house. (See also: 10 Surprising Ways to Hurt Your Credit Score)
This is wrong. I will, no doubt, keep paying my mortgage. But I cannot help but be angered by this whole system. It is rewarding people who made bad, bad choices. No one forced anyone to buy a home way bigger than they could afford. No one put a gun to Joe Schmo's head and said "Hey, sign this, take a huge mortgage and do it with an adjustable, interest-only rate." And yet those guys, the ones who bit off way more than they could chew, are now going to get help. They get to keep their big house and pay a nice new low-rate mortgage. They don't even have to pay back the money they didn't pay on mortgage payments.
Now, there are exceptions to the rule. People who lost their jobs and couldn't pay the mortgage, they genuinely need the help. People who got sick and had massive medical bills to pay, fair enough. But for the average greedy speculator who bought too much house with no money down and a sharply rising interest rate…well, in my opinion, that person should have to live with the consequences. I have my own problems, as do many of you. But why should my hard-earned taxes bail out the irresponsible segment of our society? It's complete BS.
The one reason I've been given is that we need to help these people, or our home values will suffer. But the market has pretty-much bottomed out anyway. So, that's no consolation to me. No, I'm mad as hell and I just can't think of a better way to prove it than to stop paying my mortgage and get in on this nationwide handout. How about you?