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Strategic Default: The Long and Short of It All

To stay and pay, to refinance, or to strategically default? There are many options to choose from if you’re a homeowner today.

Since 2009, foreclosures have jumped up past 20 percent almost every year, with a fluctuation only in the past 1 - 2 years. In 2010, 10 percent of all mortgages were delinquent—a brand new record for that year. The Obama administration has worked to accomplish several foreclosure relief plans, with no tangible success yet, although they’ve just revealed a new deal for 2012 that could reduce principal for homeowners facing foreclosure.

Although the rate of foreclosure has somewhat decreased today, the main difference is in the reason: while many homeowners can afford their mortgage payments nowadays, they choose not to. Instead, they’ve gone t
he route of a “strategic default.” With a home mortgage that’s could have jumped to double what the home is now worth, it has recently made a lot of sense to homeowners to use a strategic default. This is a decision on the part of a borrower to default on their mortgage, despite being able to financially make the payments.  The reason behind the action? More than once, it’s because the house significantly dropped in worth from what the homeowner was originally paying on their mortgage.

Is It Worth It?

To stay and pay, to refinance, or to strategically default? There are many options to choose from and if you’re a homeowner facing the problems of paying for a house that’s not worth what you originally settled for, chances are you shouldn’t have to stay and pay. No one’s telling anyone not to make their payments—that’s your own personal decision. But if you still owe $400,000 on a new house that’s now worth about half of that, you might consider dropping those payments to avoid holding onto what has now become a liability. Check out my friend’s informative blog on strategic default.

If you think about it…it just doesn’t make sense to continue making payments above $100,000 on a house that is now worth half of that. On the short side: even if you can afford the payments, do you want to continue investing your money in an investment that’s really not worth it? But on the long side, if you can afford the payments…why not continue to make them?

The personal decision, at the end, is entirely up to you. Consider your benefits and what will be the best route for you and your family, if you’re a homeowner, and stick with your decision.

Need to know more information for dealing with a mortgage that’s just not worth it anymore? Check out strategies for dealing with your mortgage.  And if you need to check out nearby listings in your area, visit our featured Curtin Team listings online.

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This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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