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Financial Questions & Answers

Financial Questions & Answers

Question:

I have an adjustable-rate mortgage, and the value of the house has dropped significantly. Consequently, it is upside-down. I could just walk away. But where would I live? I was thinking of buying a second home prior to walking away from this one. – Allen

Answer:

I’m a big believer in personal responsibility. The idea of buying a new house and then “walking away” from your current home makes me feel uneasy – hopefully you, too. After the hard lessons of the last couple of years, it would also probably make a lending institution you might contact about buying a second home apprehensive about lending the money. You could walk away, but should you? You didn’t indicate that making the payments on your home is an issue; just that you’re upside-down – you owe more than the property is currently worth – and are wondering if you should fulfill your obligation. Do the right thing. I would recommend you keep the mortgage and continue to make payments. Your principal and interest payments will reduce the mortgage balance, and eventually the housing market will turn around and drive up your home’s value over time. If you plan on staying in your house beyond three years, you should consider looking at your options for a fixed-rate mortgage. Rates are still relatively low, but money is tight. It is, though, worth a shot. Fixing your mortgage will allow for budgeting a set monthly mortgage payment both now and in the future. Yes, you may have to bring some cash to the table, but this way you’ll feel better about honoring your financial obligation and your credit history.