How to get out from under your mortgage

Refinancing Underwater Mortgages

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When your home declines in value rapidly, you might end up owing more money on your mortgage than what your home is worth. When you find yourself in this situation, it can make it difficult to sell your home or to refinance your existing mortgage. In this situation, there are programs that can help you get a cheaper payment and take advantage of lower market interest rates.

How Refinancing Works

The basic idea behind refinancing your mortgage is pretty simple. You apply for and receive a new mortgage from a mortgage lender on your home. Once you receive the funds from the new mortgage, you use them to pay off your old mortgage loan. At that point, you start making payments to the new mortgage lender each month. The new payment and the interest rate on the loan may be lower than what you were paying with the other loan.

In order to qualify for a regular refinance, the lender will look at your financial situation and the value of your home. Each lender uses a loan-to-value ratio to determine if you qualify for a new loan. If the value of the house is below a certain point relative to how much you need to borrow, the loan will not be approved in most cases. If you owe more money than what your house is worth, most lenders will not want to refinance your existing mortgage.

HARP 2.0

Although traditional mortgages don't help those who are upside down on their mortgages, the HARP 2.0 program does offer some assistance to distressed homeowners. HARP or the Home Affordable Refinance Program is a government program that was designed to allow homeowners to refinance even if they are underwater on their mortgages. The original HARP program had some pretty strict rules and has already expired. However, HARP 2.0 is a new program that was set up by the government to help homeowners. With this program, even more homeowners will be helped than with the first one.

HARP 2.0 Rules

In order to get your home refinanced through HARP, you must meet the eligibility guidelines of the new HARP program. The mortgage that you want to refinance must be owned by Freddie Mac or Fannie Mae. When you apply for the new loan, you must be current on your mortgage and you can only have one late payment in the last 12 months.

Under the old HARP guidelines, the loan-to-value ratio on your loan had to be below 125 perent of the value of your home. With the new guidelines, there is no loan-to-value ratio to worry about. Even if you owe much more than what your home is worth, you could still qualify for a refinance under the program. You also cannot refinance for the purpose of taking cash out with the loan. You must be refinancing in order to lower your monthly payment and your ability to make payments.


If you're interested in refinancing under the HARP program, you do not have to work with the same lender that you're currently working with. In fact, it may be to your advantage to shop around a bit so that you can get the best deal. Look at the various 15-year refinance rates that are available in the market. Consider some new 30-year mortgages as well. Once you look at 15-year refinance rates and 30-year rates, you can make an educated decision about where to refinance. At that point, you'll be able to enjoy lower interest rates and a lower monthly payment on your mortgage. This makes it easier to afford your monthly bills so that you can stay in your home.

Take the Next Step:

  • For more on refinancing a mortgage, please visit here.

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