Borrowers with equity who can't meet their mortgage payments and decide to sell should resist the temptation to stop paying on their mortgage. It will cost them more before they are through, and it will ruin their credit.

Stop Mortgage Payments If You Plan to Sell?
September 17, 2007

Borrowers with equity who can't meet their mortgage payments and decide to sell should resist the temptation to stop paying on their mortgage. It will cost them more before they are through, and it will ruin their credit.

"Due to financial reverses, I am unable to continue making the payments on my dream house. I have a lot of equity in the house, however, and the counselor I saw recommended I sell the house and stop paying the mortgage. Do you agree?"

I agree about selling the house but disagree strongly about the advice to stop paying on your mortgage.

When you sell the house, you must deliver a clean title, which means that your mortgage (as well as any other liens) must be paid off. The unpaid interest that accrues on your mortgage will be added to the balance that you must pay. In addition, if you fall two payments or more behind, your loan will go to the collections department and incur any manner of fees, which will further swell the balance that must be repaid at closing.

On top of that, when you go to purchase a house that you can afford, your credit score will be significantly lower because of your prior delinquencies. This means you will pay more for your next mortgage.

In short, when you have equity and a credit rating to protect, stiffing the lender is a very bad idea.
 
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