Walking away from your Metro Detroit mortgage

By
Real Estate Agent with Real Estate One 6501304423

Are you planning or thinking of walking away from your Metro Detroit mortgage?  I just read a blog about how 17% of the foreclosures are people who could pay their mortgage yet walked away from the mortgage.  At the bottom somebody commented that it was stupid to do that.  I wanted to disagree with the commenter but then after really doing the math I realized the commenter was right in one aspect, but not all. 

I am going to use my own example.  And I am going to use the premise that Detroit properties are  not going to really start increasing in value for 10 years.  I myself honestly believe that we may be in a flat line appreciation for anywhere from 5 to 10 years because of Metro Detroit's economy

I myself have a Metro Detroit property that I bought at the peak or almost the peak in 2003.  The Canton duplex has lost 33% of it's value or more.  So it is going to take me ten years to be at the break even point.  Where my property is worth what I owe on the mortgage.  That's a scary thought.

Looking at an amoritization schedule:

Is is going to be somewhere in 2019 that I will be at the $100,000 what it is worth today.

 

Stay in home Amortization Schedule

YearInterestPrincipalBalance
2003 $4,319.33 $1,046.28 $156,453.72
2004 $8,550.53 $2,180.68 $154,273.03
2005 $8,427.52 $2,303.69 $151,969.34
2006 $8,297.57 $2,433.64 $149,535.70
2007 $8,160.30 $2,570.91 $146,964.79
2008 $8,015.28 $2,715.93 $144,248.85
2009 $7,862.08 $2,869.13 $141,379.72
2010 $7,700.24 $3,030.98 $138,348.74
2011 $7,529.26 $3,201.95 $135,146.80
2012 $7,348.65 $3,382.56 $131,764.23
2013 $7,157.85 $3,573.37 $128,190.87
2014 $6,956.28 $3,774.93 $124,415.94
2015 $6,743.35 $3,987.87 $120,428.07
2016 $6,518.40 $4,212.81 $116,215.26
2017 $6,280.76 $4,450.45 $111,764.81
2018 $6,029.72 $4,701.49 $107,063.32
2019 $5,764.52 $4,966.69 $102,096.62
2020 $5,484.36 $5,246.85 $96,849.77
2021 $5,188.40 $5,542.82 $91,306.96
2022 $4,875.74 $5,855.47 $85,451.48
2023 $4,545.44 $6,185.77 $79,265.72
2024 $4,196.52 $6,534.69 $72,731.02
2025 $3,827.91 $6,903.30 $65,827.72
2026 $3,438.51 $7,292.70 $58,535.02
2027 $3,027.14 $7,704.07 $50,830.95
2028 $2,592.57 $8,138.64 $42,692.31
2029 $2,133.49 $8,597.72 $34,094.59
2030 $1,648.51 $9,082.70 $25,011.88
2031 $1,136.18 $9,595.04 $15,416.85
2032 $594.94 $10,136.27 $5,280.57
2033 $85.03 $5,280.57 $0.00
 

So if it was an average homeowner in that situation they would be making $10,730 worth of payments for 10 years.  About $107,000 in money thrown away to the banks.

But if the homeowner walked away they would be in better shape in the first three years.   They would have a minimum of 9 months of free rent.  So $9,000 profit.  Then they should be able to rent cheaper than they were paying for a mortgage.  But that will only wash with what they are losing in income tax deductions.

But in 3 years after the foreclosure you can get a FHA mortgage.  So basically in 4 years you can buy a house for the same price you would have owed on the mortgage ten years down the road.   At the end of ten years the walk away guy would be better off.

                               

Walk away Amortization Schedule

YearInterestPrincipalBalance
2013 $3,242.60 $549.81 $99,450.19
2014 $6,430.27 $1,154.55 $98,295.65
2015 $6,352.95 $1,231.87 $97,063.78
2016 $6,270.45 $1,314.37 $95,749.41
2017 $6,182.42 $1,402.40 $94,347.01
2018 $6,088.50 $1,496.32 $92,850.70
2019 $5,988.29 $1,596.53 $91,254.17
2020 $5,881.37 $1,703.45 $89,550.72
2021 $5,767.28 $1,817.53 $87,733.18
2022 $5,645.56 $1,939.26 $85,793.93
2023 $5,515.68 $2,069.13 $83,724.80
2024 $5,377.11 $2,207.71 $81,517.09
2025 $5,229.26 $2,355.56 $79,161.53
2026 $5,071.50 $2,513.32 $76,648.21
2027 $4,903.18 $2,681.64 $73,966.57
2028 $4,723.58 $2,861.23 $71,105.34
2029 $4,531.96 $3,052.85 $68,052.49
2030 $4,327.51 $3,257.31 $64,795.18
2031 $4,109.36 $3,475.46 $61,319.72
2032 $3,876.60 $3,708.22 $57,611.51
2033 $3,628.25 $3,956.56 $53,654.94
2034 $3,363.28 $4,221.54 $49,433.40
2035 $3,080.55 $4,504.26 $44,929.14
2036 $2,778.89 $4,805.92 $40,123.22
2037 $2,457.03 $5,127.78 $34,995.43
2038 $2,113.61 $5,471.20 $29,524.23
2039 $1,747.20 $5,837.62 $23,686.61
2040 $1,356.24 $6,228.57 $17,458.04
2041 $939.10 $6,645.71 $10,812.33
2042 $494.03 $7,090.79 $3,721.54
2043 $70.87 $3,721.54 $0.00

But in the long run it is not smart.  You see it would be 2013 when the walkaway guy got his new home.  He wouldn't be paid off on a 30 year mortgage until 2043.  Where I will be paid off in 2033. Ten years earlier than the walk away guy.  That's just one of the financial pluses to stay in your mortgage.  I won't have bad credit for 3 years.

On the other hand until 2022 mr. walkaway would be better off when selling his house over the home owner that stayed in it.   Mr. Walkaway would net more selling in the first ten years.  Especially in the first six years.  So until 2022 Mr Walkaway would make more money.

So the bottom line is financially you will be better off if you stay in the house over 20 years as compared to the walkaway person.  If you plan to stay in one house keep paying the mortgage.

If you have bought in a bad area, or are financially over your head then it may pay to walk away.  It may pay to walk away if you plan to sell in the next 14 years.   Especially the next ten.  But the goal of any homeowner should be to pay off your mortgage as soon as possible.  If you can hang in there and pay down your mortgage and live below your means.  A smaller house than your friends may help you live a more enjoyable life with the extra money you save in payments.

What ever you do Plan and think about it before walking away from your Metro Detroit mortgage.

Just food for thought.

Russ Ravary your Metro Detroit real estate agent. 

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Russ Ravary

Real Estate One

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Comments (2)

Patrick Scott
OConnor Title Guaranty, Inc. - Chicago, IL

Russ, thanks for expressing the decision in dollars and sense (sic).  But how do you factor in the cost in terms of personal integrity?  By that I mean diluting the force of a written contract, and leaving one's neighbors with yet another boarded up shell in a metro Detroit neighborhood?  Should that not tip the balance toward honoring the contract and staying in the home?

Aug 04, 2009 04:25 PM
Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~ yesmyrealtor@gmail.com

Everybody had to make the personal decision themselves.  It is their integrity but it is ulitimately their choice, their financial future.

Nov 15, 2009 09:46 AM