I bought a house for $150,000 eight years ago and had a loan of $120,000. The value of my house increased to $350,000. I took advantage of the situation and refinanced, being a conservative person, only borrowing $280,000 at a favorable 5.5% rate fixed for 30 years paying $1,600 per month for the mortgage and another $400 per month for real estate taxes and insurance. I was conservative and spent the $135,000 of home equity that I took out on improvement to my home (new kitchen, new bathrooms, hardwood floors, finished basement, and a small swimming pool for the little ones). This caused my tax bill to increase by $200 per month due to higher assessments. After a few years, the real estate market crashed and my house is unfortunately now only worth $180,000. I still owe $270,000 and have to pay $2,200 per month to live in “my” house. My choices are a) continue paying the high monthly payment with a giant negative balance sheet or b) rent a place for $1,200 per month, let the bank have the house and start from a clean slate.
I wish the situation was as nice as the above description. Here are a few additional realities:
- All my neighbors got foreclosed and my whole neighborhood has been downgraded whereas before I thought I lived in a decent part of town.
- My town is unable to meet budget demands and has to increase taxes to pay its bills.
- I actually spent the money on Made in China products worth $0 today and a GM vehicle that’s lost a lot of its value instead of home improvements.
- My bank let me borrow up to 100% of equity so I borrowed the full $350,000.
- The loan I got had a variable interest rate and my payments are more than $2,200.
- The $30,000 stock portfolio cushion that I had is now only worth $15,000.
- I am about to lose my job even though I work hard. They say that the company has to cut back because of the economy.
- I also had a credit card balance of $38,000 and student loans of $24,000.
- Even though my wife really loves to shop, we just cannot afford to buy anything any more.
- I had never signed any contracts before buying this house, let alone the sixty thousand mortgage documents they made me sign at the closings.
- I’ve called the bank every month for the last six months asking for help or a way to get me out of this pickle.
What are my choices? I think I better let the bank have the keys, declare bankruptcy if I have to, move out into the $1,200 a month apartment and hope I can find another job so I can pay the rent before the economy gets any worse. How is any of this bull shit they talk about on TV going to help me this month? I voted for Obama to make a change but so far I see more of the same. There is little they can do to make me stay in this house given the reality I am facing.