| One of the predictable consequences of the collapse | | | | nearly $1 million. |
| of the housing bubble and the foreclosure crisis is that | | | | Thus, when a home declines in value, it is somewhat |
| property values are declining in many areas of the | | | | illogical for homeowners to consider abandoning the |
| United States. As subprime loans go into foreclosure, | | | | house on just that basis alone. They may feel like they |
| more homes are listed on the market, driving prices | | | | are paying "more than what it is worth," but they had |
| down, and erasing equity that homeowners thought | | | | already planned to do this when they took on the |
| they had. | | | | mortgage loan and agreed to pay interest to the bank. |
| When this happens on a large scale in areas that | | | | Falling property values will not alter their bad deal, |
| were inflated by the era of easy credit, homeowners | | | | except make it slightly worse. |
| may find that they owe tens or hundreds of thousands | | | | A decline of $100,000 on a $450,000 house is not a |
| of dollars more on their homes than they are worth. | | | | huge cause for alarm when the total outlay of money |
| Nobody wants to pay more for an item, be it a house, | | | | for the property will be close to $1 million. Homeowners |
| car, or pair of pants, than it is worth, and the temptation | | | | should ask themselves as soon as they apply for a |
| just to walk away from these homes is growing. | | | | mortgage whether they want to spend that much on |
| But it seems that few homeowners realize that they | | | | a house worth less than half that amount, which will |
| were always going to have to pay far more for their | | | | most likely never appreciate to value the bank is |
| house than it was worth, and paying anything could be | | | | charging for the home. |
| considered too much based on how much they | | | | There may be many reasons to give up on a property, |
| actually borrowed. First of all, a mortgage loan consists | | | | and currently declining values may factor into the |
| of a smaller portion of principal and a much larger | | | | consideration to walk away. However, homeowners |
| interest charge; and second, the bank does not actually | | | | should not consider lost equity as their main |
| lend out any money that is not created out of thin air. | | | | consideration in abandoning a house; after all, their |
| For example, consider a house that is purchased for | | | | mortgage supposedly binds them to pay two to three |
| $150,000 at 6% interest with a 30-year, fixed rate loan. | | | | times as much for the house as it is worth -- losing a |
| Homeowners may feel like they have paid $150,000 | | | | few ten thousand in value right now will not alter that in |
| for the house, but this is just the principal -- on top of | | | | the least. |
| the original $150,000, they will have to pay over | | | | Suburban sprawl, increasing expenses for |
| $173,000 just in interest to the bank, with a total P+I | | | | transportation, financial hardships, and rising crime due |
| cost of nearly $323,000. | | | | to the foreclosure crisis can be considered much more |
| With homes of higher values, the interest portion of the | | | | important reasons for homeowners to leave an area |
| debt climbs even higher. On a home bought for | | | | and let their home go into foreclosure. Feeling that they |
| $450,000 with the same terms as in the previous | | | | are "paying too much" for their house is not a good |
| example, the homeowners will pay over $521,000 in | | | | excuse, as they have agreed to pay too much just by |
| interest, increasing the cost of their $450,000 home to | | | | applying for a mortgage when purchasing their home. |