The Good and the Bad of a Strategic Default on Your Home Mortgage

Millions of Americans are currently plagued by debt that they can't realistically pay off thanks to a housing market in ruin. Sometimes there comes a point where one is paying into a home mortgage that's worth more than the house it applies to. These debts are known as "underwater mortgages," where the person paying into the debt is essentially drowning with no hope of rebounding. There is a possible solution for those looking to get out of such crippling debt known as strategic defaulting, yet it's become the source of sizable controversy. Regardless, it could be the best bet for those with nowhere else to turn.

Money versus morals

By strategically defaulting a mortgage, one simply ceases to make payments on their mortgage and allows themselves to lose their house. From a financial perspective it makes sense, because paying for a mortgage that is worth more than the house itself essentially sees the debtor throwing money away. Defaulting on a mortgage saves both money and time, facing head-on the inevitability of one losing their home. The process sounds simple enough, yet still has its points to consider.

Carrying out a strategic default raises an important moral question. Should one feel guilty for simply giving up and walking away on their payments? Some say that it's the moral obligation of the borrower to pay back to those who lent to them. Others disagree, stating that it's the responsibility of the lenders, and those lenders and banks have instances where they're equally irresponsible. The moral question is one that be only be answered by those considering to default on mortgage, and it's an important one to consider.

Saving your credit score

Defaulting on a mortgage has its potential downsides, the most obvious being harm to one's credit rating. While this is viewed by some as rather critical point, it's possible for ones score to recover granted that they pay off their other bills on time. Since foreclosures can take months and months, the time taken defaulting can also be time spent paying off other debts. This strategy can help save a credit score despite the default, although such actions take require great responsibility on behalf of the debtor.

In general, a mortgage default in general requires a lot of those who carry them out. The financial, personal, and moral stress could be potentially overwhelming. With that in mind, it's the only option for some looking to survive the housing crisis.