Getting out of an underwater mortgage

Category | Flexible Lending
Getting out of an underwater mortgage

Since the housing crisis in 2008, millions of homeowners have seen their home equity drop, leaving them with underwater mortgages where they owe more money than their home is worth. Fortunately, many have seen a return of home equity amid rising real estate prices in a recovering market, but there is still a large portion of homeowners in need of help. If you have found yourself in this situation, you have a few options to help get you out from your underwater home loan.

Continue paying your mortgage

You worked hard for your home and went through mortgage applications to finance the purchase, so you may feel attached to your residence. In this case, you might want to stay and continue paying off your mortgage in monthly intervals. However, when the market conditions change like they have over the past few years, it probably doesn’t make much financial sense to simply continue paying the same amount each month.

Instead, you need to ask yourself if you will be able to afford to continue making these monthly mortgage payments over the next several years. If you’re unsure about your future income or your payments are too high, it’s time to take action and look into loan analysis to figure out how you can lower your payments.

Sell your home

For homeowners who have negative equity on their property, it’s sometimes in their best interest to cut the losses and move on. In some cases, a lender might allow you to sell your home for less than the mortgage amount. This is known as a short sale, and while it doesn’t help your financial situation too much, it will prevent your home from falling into foreclosure. This will also mean that you won’t have major credit blemishes from your underwater mortgage.

Foreclosure sale

Of course, another route some homeowners take is allowing their home to fall into foreclosure. Those who owe more than what their home is worth and can’t afford payments may simply decide to walk away from their mortgage and home. This means the bank may repossess the home, and the homeowner is no longer responsible for the property. If you choose this path with your underwater home, your credit will take a major hit for years to come.


Of course, refinancing your home loan may be the first thing you think of when your mortgage payments are too high or you owe a significant amount on your home. However, refinancing has its own expenses, including closing and appraisal costs. Because of the high number of homeowners with underwater mortgages during the housing crisis, the majority or home loan activity has been refinancing over the past few years. Home loan services can help a homeowner lower their payments through a refinance. Here are some of the most common methods of refinancing:

  • FHA refinance: If you have a mortgage backed by the Federal Housing Administration, you’re likely eligible for streamline refinancing to lower your payments.
  • HARP loans: With a mortgage backed by Fannie Mae and Freddie Mac, you could go through the Home Affordable Refinance Program for lower payments.

Consumers looking for more information about mortgage options or refinancing should contact an Impac Mortgage Corp. loan expert for professional guidance.

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