Should You Stop Paying Your Mortgage?

I’ve  heard many who are saying that if you are underwater and your mortgage company doesn’t agree to modify your loan, you should stop paying.  After all, it isn’t fair that you need to pay $400,000 for a home that is only selling for $350,000, right?  That big, evil mortgage company is being greedy, so you shouldn’t need to pay them, right?

Let’s take this further.  If you walk into a store and you want a pair of jeans, but they now cost $40 and were on sale a few weeks ago for $30, you should just take them, right?  After all, are the jeans really worth $40?  If you put them at a yard sale, you’d be lucky to get $5 for them!  Why should you pay this big store $40 when they are only worth $5?

Hopefully, even if you agree that you should stop paying on the house, you are not agreeing with my second example, but what really is the difference?  In one case, you are stealing a pair of jeans selling for $40.  In the other case, you are refusing to pay the $400,000 you promised because the house is now worth only $350,000.  When you agreed to the loan, you were willing to pay $400,000.  You also got use of the house.  Would you have called the bank and told them to reset the loan up if the value had grown to $500,000 in a few years?  Would you walk into a bank and steal $50,000 from them over the counter?

I know there are special circumstances where people can’t pay.  Someone has a medical emergency or someone loses a job.  Maybe there is a divorce and your spouse who was the breadwinner just decides to leave you with the bills.  If you can pay and just chose not to, however, you are stealing.  No matter what the price of the house is currently, the bank gave you the full price of the house when you bought it and you agreed to pay them back.  You agreed to the interest rates, you agreed to the terms, and you agreed to the  payments.

One of the top traits that people who succeed and grow rich site is very strong ethics.  People who grow a successful business keep their word and do what they say they will.  People who lie and cheat sometimes get something for nothing, but in the end they tend to end up broke and penniless.  I don’t know if it is God, or karma, or just that those who tend to cheat get figured out and lose future business, but there is a definite correlation.

So if you are underwater in your mortgage and don’t like it, get mad and start working to pay the thing off as fast as you can.  Work extra, eat out less often, and cut some of the accessories from your life and put every penny towards the mortgage.  But don’t be a lying cheat and stop paying because you now think the terms are unfair.  You are hurting your neighbors and yourself by driving down home prices.  You will never win by cheating.  Also, you will never have the pride that comes living honestly.  While it is easy to equivocate and justify your actions, that voice deep down inside of you is telling you that you are wrong.  Listen to it instead of the moral equivalency around you.  You know what is right.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


  1. I completely agree with your post. We have a neighbor who did a short sale on her house last year. She’s a successful real estate agent, her husband is an attorney. I asked her if she was able to get out of her house without recourse (i.e., no promissory note, no judgment). She said she was, and cited her “hardship” as her husband deciding to start his own business. We’re upside down on our house too, but we can afford the payments. Like you said, we agreed to pay.

    • It seems like if banks were more agressive, perhaps requiring people who are able to pay off the balance after a short sale through an unsecured loan or something, we would see less of this problem. I could also see some sort of program where the bank splits the original loan into one equal to the current value of the house paid on immediately and one equal to the difference between the original loan balance and the current price of the home that is paid later, perhaps by allowing the bank to capture all of the appreciation on the house until the second loan is paid off. I guess it is really the business of the banks, but it affects us all.

      Thanks for the comment.

  2. They do allow promissory notes in some short sale cases. However, it’s really just an unsecured note, then that person is in such bad straights that they file for bankruptcy and the bank is right back where they started. Definitely no good answer. Average days for default is over 500 now, sadly this problem isn’t anywhere close to over.

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