One of the predictable consequences of the collapse of the housing bubble and the foreclosure crisis is that property values are declining in many areas of the United States. As subprime loans go into foreclosure, more homes are listed on the market, driving prices down, and erasing equity that homeowners thought they had.

When this happens on a large scale in areas that were inflated by the era of easy credit, homeowners may find that they owe tens or hundreds of thousands of dollars more on their homes than they are worth. Nobody wants to pay more for an item, be it a house, car, or pair of pants, than it is worth, and the temptation just to walk away from these homes is growing.

But it seems that few homeowners realize that they were always going to have to pay far more for their house than it was worth, and paying anything could be considered too much based on how much they actually borrowed. First of all, a mortgage loan consists of a smaller portion of principal and a much larger interest charge; and second, the bank does not actually lend out any money that is not created out of thin air.

For example, consider a house that is purchased for $150,000 at 6% interest with a 30-year, fixed rate loan. Homeowners may feel like they have paid $150,000 for the house, but this is just the principal -- on top of the original $150,000, they will have to pay over $173,000 just in interest to the bank, with a total P+I cost of nearly $323,000.

With homes of higher values, the interest portion of the debt climbs even higher. On a home bought for $450,000 with the same terms as in the previous example, the homeowners will pay over $521,000 in interest, increasing the cost of their $450,000 home to nearly $1 million.

Thus, when a home declines in value, it is somewhat illogical for homeowners to consider abandoning the house on just that basis alone. They may feel like they are paying "more than what it is worth," but they had already planned to do this when they took on the mortgage loan and agreed to pay interest to the bank. Falling property values will not alter their bad deal, except make it slightly worse.

A decline of $100,000 on a $450,000 house is not a huge cause for alarm when the total outlay of money for the property will be close to $1 million. Homeowners should ask themselves as soon as they apply for a mortgage whether they want to spend that much on a house worth less than half that amount, which will most likely never appreciate to value the bank is charging for the home.

There may be many reasons to give up on a property, and currently declining values may factor into the consideration to walk away. However, homeowners should not consider lost equity as their main consideration in abandoning a house; after all, their mortgage supposedly binds them to pay two to three times as much for the house as it is worth -- losing a few ten thousand in value right now will not alter that in the least.

Suburban sprawl, increasing expenses for transportation, financial hardships, and rising crime due to the foreclosure crisis can be considered much more important reasons for homeowners to leave an area and let their home go into foreclosure. Feeling that they are "paying too much" for their house is not a good excuse, as they have agreed to pay too much just by applying for a mortgage when purchasing their home.

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