Homeowner Underwater Principal Reduction Options–Will Short Refinancing Make Underwater Mortgages More Affordable?

Many homeowners have seen a decrease in the amount of their home’s value over the past months and, as a result, have become underwater in their mortgage, meaning they owe more on their home than their home is actually worth. This is obviously a difficult situation for many homeowners as a home loan payment can be quite costly and when a homeowner has been struggling due to economic factors that have been hurting many as of late, owing more on their home than their home is worth is a situation many homeowners want to resolve.

Principal reduction options have been made available to many homeowners who are in an underwater mortgage situation and may be having trouble making their mortgage payments. While there are some lenders who do not believe principal reductions should be used on a wide scale, there are homeowners who have been able to get a reduction in their principle from their lender by various means.

Some lenders have been using a method called short refinancing as a way to help homeowners who are troubled with their mortgage payment and have seen a decrease in their home’s value. When short refinancing is used a mortgage is simply refinanced by a lender and their new home loan amount is typically less than their existing home loan amount. Usually when a lender offers some form of principal reduction the difference is, obviously, forgiven.

Again, not all lenders are using principal reduction as a means to help homeowners in an underwater mortgage situation, but there are cases where even these lenders who are hesitant to provide a principle reduction may make an exception. Also, homeowners who have an underwater mortgage may qualify for underwater mortgage refinancing opportunities if their home is owned or guaranteed by Fannie Mae or Freddie Mac.

Homeowners who have seen a decrease in the value of their home and, as a result, are having trouble paying their mortgage, are often advised to contact their lender early so that their underwater mortgage troubles will not get out of hand. While, again, many lenders are dealing with underwater mortgages in different ways, there are assistance options available for homeowners who have an underwater mortgage and simply want a more affordable home loan payment.