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Wednesday, November 2, 2011
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What Homeowners Should Know About Strategic Default
Who would risk the negative impact of defaulting on a mortgage if they didn't really have to? About 17 percent of Americans who defaulted on their mortgages in the second quarter of 2010 did exactly that, according to a study by Experian, the leading global information services company. "Strategic default"—choosing to stop paying on your mortgage even if you can afford the monthly payments—peaked at the end of 2008 during the height of the Great Recession. At that time, strategic defaults accounted for 20 percent of all mortgage defaults 60 or more days overdue, according to Experian. And while the percentage of Americans taking this option has steadily declined since then, the credit risks for strategic defaulters remain unchanged. "Not paying your mortgage will have a far-reaching, long-lasting impact on your ability to secure future credit, regardless of the reason for your default," says Charles Chung, Experian's president of Decision Analytics. "Experian's study indicates that many strategic defaulters continue to faithfully pay on their other debts. Some even purchase other homes for better terms before selectively defaulting on their upside-down mortgage." For those who owe more on their home than its current market value, it's tempting to walk away from a bad investment, even if the monthly mortgage payment is affordable. But when considering strategic default, homeowners should keep several factors in mind:
"Some may see strategic default as a way to get out of paying a bad debt," Chung says. "But its associated costs like a lower credit score, higher interest rates and less ability to secure future credits, can wipe out the financial benefit of no longer having a mortgage payment." To learn more about credit management, credit reports, credit scores and the factors that affect them, visit http://www.experian.com/. |
Thursday, October 13, 2011
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