Things To Do About an Upside-Down Mortgage

Things To Do About an Upside-Down Mortgage

The decline in home values in many regions of the nation because 2006 has left many homeowners that bought homes or refinanced in 2003 through 2007 with a mortgage balance that is higher than the current value of the house. Owing more cash on a loan than the home is worth is known as being upside-down or having negative equity.

Considerations

The very first step is to evaluate your home’s worth, your mortgage and your personal finances. You need to determine if the mortgage is still affordable and if it can change later on. For instance, if the loan is interest only, the payment will increase significantly when the interest-only period runs out. Evaluate the loan amount to the house worth. If the house is worth half of the loan worth, drastic measures may be the optimal solution. If the house is worth 10 or 20% less than the loan value, you may have more choices.

Warning

The drastic remedy to get out of an upside-down mortgage would be to submit a voluntary foreclosure, where the lender chooses the home back, or a brief sale. A brief sale is when the home sells for less than the loan amount, but the creditor accepts the lower price as complete payment on the loan. Either option may have a serious negative impact on your credit rating and will influence your ability to buy another house or to borrow cash.

Modification

It can be possible to receive a modification to your home loan to make it more affordable. The government’s Home Affordability Software encourages and pays mortgage businesses to work with homeowners to modify their mortgages for reduced payments. Most modification programs don’t decrease the principal amount of the loan, but might make monthly payments more affordable so that you can remain in your home. The authorities modification plan allows fluctuations in interest rates to lower the payment, and the loan amount can be up to 125% of the house’s value.

Resources

Should you have to make a change on your home situation, talk to a housing counselor. The Hope Now website is run by the U.S. Department of Housing and Urban Development’s approved counseling agencies and mortgage companies to give help to homeowners. HUD also has a page on its site providing information on home advisers in your area.

Possible

A developing trend is cash-in mortgage refinancing, according to”The Washington Post.” It’s becoming more common for homeowners that want to maintain their homes and refinance at lower interest rates to pay in money to lower the loan amount and qualify for a mortgage. In a February 2010 article,”The Washington Post reported that in refinances through Freddie Mac, 33 percent of taxpayers were paying money to lessen the mortgage amount and receive a lower interest rate.

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