Comment on A conundrum

• ExLisper@lemmy.curiana.net ⁨1⁩ ⁨day⁩ ago

  You’ll be $50k better off if you just stop paying and let the bank foreclose.

  And do what? Live under a bridge? You would still have to buy a new house. Are you going to find similar house at $600k easily? Are interest rates still low despite market collapse? Will banks lend you money if just foreclosed?

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  • null_dot@lemmy.dbzer0.com ⁨1⁩ ⁨day⁩ ago

    Don’t be daft.

    I’m not providing advice regarding what someone ought to do when they find themselves in negative equity.

    I’m explaining the requirement for buyers to start with a reasonable amount of equity.

    Once an owner falls into negative equity, they have an incentive to default on the loan. Yes there will be consequences, but the fact remains they will he weighing those consequences against the financial incentive to default.

    The “better off” in my comment is an impartial objective calculation.

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    • ExLisper@lemmy.curiana.net ⁨1⁩ ⁨day⁩ ago

      But what you’re saying is simply not true. Where I live you have to provide 20% of equity to get a mortgage but you can’t default when the prices go down. No bank offers mortgage covered in 100% by the house. If you owe the bank $600k you owe then $600k, that’s it. If you default and you’re house now only costs $500k you still owe them $100k.

      So the 20% requirement has nothing to do with negative equity protections. It’s to limit the banks exposure in case you’re unable to pay.

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      • null_dot@lemmy.dbzer0.com ⁨1⁩ ⁨day⁩ ago

        Sorry chief, you’re just not picking up what I’m laying down.

        Of course you still owe the money, you’re just much less likely to pay.

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• Dalvoron@lemmy.zip ⁨1⁩ ⁨day⁩ ago

  I seem to completely misunderstand the dynamic.

  As I see it, you have paid $700k for the house with the bank’s money (in this thread there is no deposit), bought back some of the house from the bank with $50k of your own money and then lost the house so you’re out $50k with no house.

  If the bank does pay out some of the value of the house to you based on equity, it’s just going to be a smaller amount than $50k since the value of the house is lower and part of your repayment went to interest so you don’t even get $50k worth of equity. This feels like a worse position to me.

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  • null_dot@lemmy.dbzer0.com ⁨1⁩ ⁨day⁩ ago

    You’re overthinking it.

    The loan history is not relevant. The $50k you paid is gone. Sunk costs fallacy and all that.

    A mortgage isn’t a complicated shared equity situation.

    You owe the bank $650k and if you don’t pay they will take the house worth $600k.

    Obviously if you default there will be legal problems and you’re still on the hook for the last $50k and so on, but there’s no incentive to keep paying. Like if you declare bankruptcy then you don’t have to pay the $50k and you can start saving for a deposit on your next house for when the exclusion period expires.

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    • Lumisal@lemmy.world ⁨1⁩ ⁨day⁩ ago

      Declaring bankruptcy would only be beneficial if the housing market fully crashed and it went down in price significantly and you don’t think it’ll be going back up within the next few years.

      Not to mention it’ll be a lot harder to get a house in the future if you did that, and you’d get all the other downsides of bankruptcy as well.

      Not to mention, this is all under a stay that assumes you’d actually be able to buy a house without a significant deposit.

      Under the current system, it’d be an even bigger setback because if the house did lose a lot of value, now you’re also out a huge amount of money, still have to pay the full loan anyway, and it might take years to save up enough again to get a future house.

      Basically, the banks are operating more as insurance gamblers now than they are lenders, because no matter what they win big. Even though banks should primarily work as centralized financial institutions rather than businesses, because otherwise they cause huge ramifications for the economy.

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