Tips for Refinancing Your Upside-Down Mortgage

The recent mortgage crisis has put many homeowners in a proverbial financial pickle - upside-down mortgages. An upside-down mortgage refers to a situation in which a homeowner owes more on their home than its actual market value. Because of this, refinancing an upside-down mortgage is often more difficult and it costs the homeowner more than a traditional refinance. With the following advice, however, you can refinance your upside-down mortgage without losing more money than you really need to.

1. Do some calculations. It's going to be very difficult to find a lending institution that will refinance your home if you are upside-down in your mortgage by five percent or more. As an example, if your home is worth $200,000 and you owe more than $210,000, you are upside-down in your mortgage by more than five percent. Most lending institutions won't want to take this financial risk.

2. Check the current interest rates. If you do find a lending institution that will refinance your upside-down mortgage, check the current interest rates before making your decision. The rates fluctuate and you could end up with a higher interest rate than you have right now. Depending on the difference in interest rates, you could be paying thousands of dollars more in the long run to pay off your mortgage than if you had just stayed in your upside-down mortgage.

3. Contact the federal government. There is help out there for homeowners who are in serious financial trouble. Contact the Federal Housing Administration (FHA) to see what resources you can take advantage of. For instance, you may be eligible for a second mortgage on your home which would cover the difference between your home's market value and how much you owe. As an example, if your home is worth $200,000 and you owe $220,000, the FHA may offer a second mortgage on the $20,000 difference so you can refinance the other $200,000 with a better interest rate.

4. Wait a couple years. Unless you are planning to move to another home in the near future, you might as well wait it out. The real estate market fluctuates over the years and this could just be a low point in your area. In a couple years, your home's value may go back up and you would no longer be in an upside-down mortgage. The value may even increase and you could make a profit if you waited until then to sell it. Just stay put and see what happens unless there is a reason for you to move right away.

An upside-down mortgage is nothing to be alarmed about if you are not moving. It's par for the course in the mortgage industry these days and thousands, if not millions, of homeowners have found themselves in this situation. Use some financial savvy and some patience to \"ride out the storm\" and make sound and rational decisions.