Many homeowners with an underwater mortgage have been asking for principal reduction plans in order to make their home more affordable or to lighten the burden that comes with owing more on a home than their home is worth. However, some lenders have been hesitant to use principal reduction options as they believe they are unfair and if a homeowner regains value in their home, a lender will be unable to increase the mortgage principal.
Lenders have been unwilling to use mortgage principal reductions for the simple fact that they feel it is a lose-lose situation for them. Homeowners stand to gain if their mortgage principal is lowered if their home decreases in value, but on the other hand, if the homeowner’s property increases than the homeowner can simply take advantage and sell their home at a prophet. Lenders argue that principal reductions on a wide scale make mortgage contracts useless.
While there may be some cases where these lenders who are opposed to principal reductions would allow one to the offered, these situations are not going to apply to every homeowner. If a homeowner is having trouble making their mortgage payment due to the loss of value in their home or if a homeowner is in an area where they are unlikely to regain any of the value that was lost in their home, lenders may be willing to offer a principal reduction.
Some lenders are working more with these reductions than others, but homeowners that have grown frustrated with their underwater mortgage and inability to get a principal reduction have sometimes simply walked away from their home. This is a very bad decision as it can hurt an individual’s credit score and put them in a position where they are unable to buy a home for many years.
Short sales may be an alternative to defaulting when a homeowner is facing an underwater mortgage. While this does cause some trouble for a homeowner’s credit score, lenders may be more understandable of this on a homeowner’s credit history when they go to buy a new home later.
Homeowners that are struggling with an underwater mortgage are being advised to talk with their lender about mortgage assistance options that may be available to help. There are plans which can help an underwater mortgage homeowner keep their home and make it more affordable. There are also plans that will help homeowners get out from an underwater mortgage without doing a reputable damage to their credit, but only by talking with a mortgage lender will a homeowner be able to find a plan that works for their situation.