Negative Home Equity–Can Refinancing To A Fixed-Rate Mortgage Help Homeowners With An Underwater Home Loan?

Negative equity due to the loss of property value has become a problem for numerous homeowners as this situation can be complex when it concerns the options that are available to homeowners who are underwater. Obviously, underwater home loans have been a more common problem across the nation as property values have failed in certain areas, but solutions for certain individuals have come through refinancing opportunities.

In many cases, homeowners who had home loans in the form of adjustable-rate mortgages are those who may have had a particularly difficult time and are in need of an underwater mortgage assistance plan. While there are homeowners in numerous mortgage situations who have seen their property value decrease and have been in need of refinancing options, one of the ways that homeowners have been able to find affordability in their home loan is by refinancing to a fixed-rate mortgage.

Obviously, many homeowners who were attempting to lower their monthly mortgage payment found that refinancing to a 30-year fixed rate mortgage or another fixed-rate home loan option came with a low mortgage rate, for those who qualified, as home loan rates have been quite low over the past months.

The problem that many underwater homeowners have faced is their lack of refinancing options when negative equity is a problem. While the opportunity to refinance may bring about a lower interest rate and lower monthly mortgage payment, homeowners who owe more on their home than it’s actually worth cannot refinance through traditional methods in the vast majority of cases.

Yet, options like the FHA’s short refinancing program and the Making Home Affordable Home Affordable Refinance Program have offered homeowners opportunities to find affordability on their underwater home loan in the past. Since some options require that a servicer make a principal reduction or take a loss on the mortgage, this has complicated refinancing matters for underwater homeowners.

However, in situations where a homeowner is struggling to make their mortgage payments and fears they may face a default as a result of having negative equity in their home, counselors have advised homeowners to contact their mortgage servicer to see what opportunities may be available or consult resources like the Making Home Affordable website. Underwater refinancing may be an option for some, but others may be in a better position to benefit from short sell opportunities. Yet, homeowners have to understand that the underwater mortgage refinancing options available will be dependent upon a homeowner’s personal mortgage situation and their whether their mortgage servicer will allow homeowners to use the options which may be available.