Personal Finance Guidance: When Your Mortgage is Underwater

We all make personal finance mistakes sometimes, and if you owe more on your home than what you could sell it for in the present market, it’s called an “underwater mortgage.” The situation can seem hopeless – pouring money into a property that will not yield a financial benefit, and which could actually damage your finances instead. However, consumers who find themselves in this situation still have options to explore.

Renegotiate With Your Mortgage Company

If you want to keep your home, negotiating with your mortgage company is key. Lenders don’t like to advertise this option, but many are willing to renegotiate your interest rate, the number of payments left or even the balance due on your loan. Government programs to keep people in their homes add to the lender’s toolkit in this area and may make it possible to start fresh with completely new loan terms that remove you from underwater status. Remember: lenders have a vested interest in homeowners successfully paying off their home loans.

Explore the Option a Short Sale

It can be a difficult decision, but if you do want to sell an underwater home, this is your best bet. You’ll likely want to get expert advice before pursuing this option, but a short sale is when the bank allows you to sell the house for less than what you owe. In some cases, you’ll still have to pay for the remainder, but banks have also been known to forgive the additional debt under the right circumstances. Opening a line of communication and learning all you can is important before you undertake a short sale.

Consider Tenants

It may not be ideal to share your home with a renter or two but taking on tenants in the basement or even in a single room of the home could provide the extra income you need to cover your traditional mortgage expenses. It may even enable you to put more toward your loan in an effort to pay down the mortgage debt more quickly.

Money trouble can make all of us feel stuck sometimes, but an underwater mortgage doesn’t have to be a hopeless situation. Consider your options and choose the best one for your circumstances.

Image via Unsplash/Jeremy Bishop