The other day I was talking with a friend about how we pay so much each month for our mortgage payment, yet maybe 10% goes towards principal. It’s frustrating, and often makes me dream of selling my house and being mortgage free. Of course, then we’d have to pay rent and who knows if that would be better for us. I told her how I had been paying extra on the principal to reduce the amount of interest we end up paying and to shorten the length of our mortgage. She had some objections, and I listened to her while taking mental notes. Here’s what she thought about us paying extra on the mortgage:
-Because we don’t plan on staying in this house forever, she thought it would be in our best interests to stop paying extra on the mortgage and to start putting that money elsewhere. Maybe a Roth IRA, investments, etc. Over the long term, she thought it would be better if we invested the money over it being tied up in (maybe) equity in the house.
-There’s not really a way to get the money back that you pay extra on your mortgage unless you take out a home equity loan, and that’s not really something I ever want to do unless it was an emergency.
-Cash is king. If we take the extra money we’d be putting towards the mortgage in a savings account, we’d have access to that in case of an emergency.
-If our house value ever dropped dramatically and we wanted to walk away from our mortgage, the less money we had into the house, the better. I don’t know if I could ever walk away from a mortgage, but with the economy roller-coastering like it has been the past few years, who knows what will happen with home values. I don’t want to be stuck with this house and not be able to move or sell it.
I can understand why people would walk away from a mortgage. My parents’ house in Michigan was worth at least $240,000 at one point and now is probably worth less than $100,000. Had they had a mortgage on the house, it probably wouldn’t be worth paying the payments on a house they probably would never recoup the money. Of course, their house has been paid off for years, so they’re only screwed if they go to sell, which I don’t see them doing in the near future.
Do you think you would ever walk away from a mortgage? What circumstances would cause you to do so?