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I have equity, but am behind on a number of payments. Can I refinance?

Original question: I have equity in my owner-occupied home even with the decline of property values. My home is located in Seattle. I owe $190k plus several back payments of some $70k. I am able to pay the mortgage if I can refinance at today's mortgage rates instead of the 6 percent rate I am under now (fixed-rate loan). Is there any hope for me other than selling my house via a short sale? I want to keep it and continue to live there.

A: The late payments make it unlikely that you can refinance. You have probably done sufficient damage to your credit score that, even if you could refinance, the interest rate you might be offered would be little better than what you are paying today.

You might instead talk to your servicer about a loan modification. If you are eligible for HAMP, your monthly payment can be lowered though a series of actions to get it to a point where it is not more than 31 percent of your monthly gross (pre-tax) income. This may provide you the affordability you need in order to retain your home.

If you are not eligible for HAMP, your servicer may make a proprietary modification available to you.

This would require direct negotiation with your servicer, who will act on behalf of the loan's owner to try to mitigate actual or potential loss. If available, you may get some relief relative to where you are at the moment, but these kinds of deals are highly individualized to try to produce the best outcome for both the loan's owner and you.

You mention "short sale." A short sale is where the mortgage lender agrees that the home can be sold for less than the value of the mortgage on the property. Unless you have no equity at all, you should not need to conduct a short sale to get out of your property if that is what you want to do.

More help from HSH.com

  • When refinancing at a higher rate makes sense

    Trade your old mortgage for a new, higher-rate version? There are times when it actually makes sense.
  • Should I pay off a mortgage early?

    By making extra principal payments or refinancing your mortgage, you could pay a lot less interest and free yourself from your mortgage ahead of schedule. Here are the pros and cons of retiring your mortgage early.
  • How does a refinance in 2017 affect your taxes?

    After a mortgage refinance, there are some specific "dos" and "don'ts" you need to know prior to filing your income taxes, as well as a few pointers that can help you lower your tax bite.

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