|Foreclosure Defense||Loan Modification||Bankruptcy|
|IRS Debt Settlement||Personal Injury||Collections Harassment|
PART I - THE DECISION:
Apart from emotion, the decision to permit a foreclosure to occur on one's home as opposed to continuing to pay the monthly mortgage may be a financial one. A home's current market value may be so much less than the amount of the existing mortgage(s) on it, that a homeowner may determine they cannot (or will not) wait for the home's market value to exceed the amount of the mortgage(s). Alternatively, if the monthly cost to own a home including the mortgage payment, real estate taxes, homeowner's insurance, (and any homeowners' association dues) exceeds the cost of renting the same home, a homeowner may decide that they no longer wish to own the home. This situation may be compounded by the fact that the homeowner owes much more on the home than it is currently worth (or will be worth in the foreseeable future). In this instance, the homeowner will most likely evaluate the following equation:
Monthly Cost of Owning Home - Monthly Cost of Renting Home = Monthly Savings by Renting Home Instead of Owning Home
This is a simplified equation. As the equation should take into account the tax benefits of owning a home and the current value of the home vs. the amount of existing mortgages on the home, you may want to use our DECISION ESTIMATOR TOOL.
PART II - THE CALCULATION:
Once a borrower has decided to allow their primary residence to go into foreclosure, the amount of their monthly mortgage payment does not matter in measuring the financial benefit of the Stay, Don't Pay approach. What does matter is "The Cost of Replacement." For example, the fact that a borrower, living in a 3 bedroom/ 2 bath home, with a $3,000 monthly mortgage payment, does not matter nor does it represent his/her monthly savings once the borrower decides to let the property go into foreclosure. What does matter is how much the borrower will have to pay each month to rent a comparable residence after the lender obtains possession of the home and the borrower must move out. This represents the monthly savings of the Stay, Don't Pay approach.
To illustrate, if a borrower would have to pay $1,700 per month to rent the same type of residence, the borrower is saving $1,700 per month for every month that they are able to live in their home without making a mortgage payment.. instead of moving out and renting another residence. In this example, every month that a borrower lives in the home will save him/her $1,700. One year's savings would be $20,400. Rent on a primary residence is not tax-deductible. Therefore, the borrower will have spent $20,400 of their take-home pay to rent a residence for one year. This Financial Equation helps borrowers understand how much money they may be saving each month.