What are my Options if I’m Underwater On My Mortgage?

What Should I Do If I’m Underwater in My Mortgage?

Chances are, your mortgage is probably one of your largest bills paid every month, if not the largest. If you’ve hit financial difficulty (such as suffering a job loss), if your mortgage rate has spiked, or for some reason your mortgage payments have become impossible to manage, you may find yourself underwater in your mortgage. When you are underwater in your mortgage, you owe more on the mortgage balance than your home is actually worth, and/or it can also mean that you’ve got behind in payments and are at risk of losing your home. Either way, this is a situation that needs to be handled as it is possible. Below are three things you can do to help manage being underwater in your mortgage.

§         Pay the mortgage

If you’re still able to afford your home, pay the mortgage anyway — even though you owe more on your home that it’s actually worth. After all, you bought this house (hopefully) to be a home, not just an investment; so if you can still afford it, keep paying the mortgage and don’t complain. Chances are, the value will go up again at some point if you do want to sell. For now, though, sit tight and just keep paying.

§         Renegotiate with the lender

If you’ve been good about making payments on your mortgage, today’s lenders are often much more amenable to renegotiate your mortgage payments than they have been in the past; with so many foreclosures going on in the country right now, lenders are sitting on a lot of unsold houses they can’t afford to be holding, either. So if possible, renegotiate your terms with the lender to make your payments more affordable so that you can stay in your home. In some cases, you may even be able to refinance your mortgage so that your current payments are lower than your previous ones, based upon the new value of your home and your current financial situation. If you do decide to try doing this, make sure you’re talking to the law department and not a collection agent. Homeownership counseling agencies can also help you if this is an option you want to try.

§         Try for a short sale

If foreclosure is going to be imminent, you can’t stay in your home, and refinancing or loan term renegotiation are not possible, a short sale lets you sell the house for less than the balance you owe on the mortgage, gives the bank the proceeds, and then often wipes out the balance of your mortgage debt, calling things “even,” so to speak. In some cases come you may still all money to the bank, but it will be much less than what you would have owed originally. By doing a short sale, you don’t make any money on the sale of your house, but you don’t lose any or at least as much money; in short, you simply walk away, often free and clear with little to no debt owed to the bank and nothing made on the house, either.

The last and least desired scenario is of course that foreclosure is going to happen anyway. Trying the above suggestions to see if you can avoid foreclosure and perhaps even stay in your home is always a better bet, so try to do so if you can.