Can I refinance if I owe more than the house is worth?

Posted by  on Sep 02, 2012

Q: We could save a lot of money if we refinanced our home, but so far we've been prevented from doing so because the value of the property fell below what we owe on our mortgage. It's been a nerve-wracking waiting game: we've been waiting for either the value of the house to go back up, or for us to have paid off enough of the mortgage for it to be less than the value of the house. Now I'm reading that mortgage rates have started moving back up; does that mean we've missed the boat on refinancing?

A: Mortgage rates have edged up a bit in recent weeks, but that shouldn't mean you've missed the boat on refinancing. In the context of how far mortgage rates have fallen in recent years, the recent turn upwards in rates is barely a blip. For example, by late August, mortgage rates were about where they had been at the beginning of July. It sounds like you've been playing this waiting game for some time so, if refinancing made sense earlier this year, it should still make sense now.

Reducing your principal may help

Still, it's understandable why your waiting game has been so nerve-wracking -- there's no telling whether refinance rates will stay low much longer. If you have any savings, you might even consider paying down part of your current mortgage so your principal would be small enough to refinance. With interest rates so low, you might save more money than the return you could earn on those savings.

Investigate MHA program

Another option is to look into the Making Home Affordable Program. This is a federal government program to stabilize the housing market, and part of it is aimed at people who have kept up with their mortgage payments, but can't refinance because their house is worth less than they owe. To be eligible, your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae, so you should take the first step and find that out today.

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