Mortgage Principal Reduction On A Home Loan–Can Underwater Homeowners Lower Their Principal?

Homeowners who are suffering from an underwater mortgage have been seeking mortgage principal reductions from lenders who are offering this type of mortgage assistance from either an extension of the Making Home Affordable Program or from an in-house principal reduction program.

Many lenders feel that principal reductions are not fair but they are willing to make this type of assistance available to homeowners who live in an area where they have lost a substantial amount on their home loan or in a case where a homeowner is unable to make their monthly mortgage payment due to a loss of their home’s value. However, there are certain financial institutions that are making more principal reductions than others, which is quite beneficial for struggling homeowners.

It’s understandable why principal reductions seem to be what many homeowners are seeking, since many of these homeowners see their house as an investment and do not want to owe more on their home than their home is worth. This situation would make it almost impossible for a homeowner to sell their house for a profit years down the road.

However, homeowners that are simply frustrated with this underwater situation may be able to short sell their home and get away from their mortgage completely. Homeowners who default stand to do more damage to their credit than those who work with their lender to short sell and there is a higher likelihood that a homeowner who short sells would be able to buy another home sooner than one who simply defaults.

Underwater homeowners are in a very tough situation, but it is being advised that any homeowner who is seeking some form of underwater mortgage assistance talk with their lender and ask about what programs are available from their particular lender and how they may help in a homeowner’s particular situation.