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I'm struggling with my payment. Can I refinance?

I'm having trouble making payments and I need to refinance our home. We have an interest-only loan on $122,400. We have no assets for closing fees. Also I'm not sure of the current value of the house giving the drop in the market. I can't afford anything more than a $700/month pmt because I also pay almost $200 in escrow. We need help. We have great credit if that helps.

A: Without knowing if you have any equity in the home, or the interest rate you are currently at, it's hard to know if you can or cannot refinance using traditional means. It's also not clear if the $700 per month you cite does or does not include your escrow payment. If it _doesn't_, the good news is that your $700 per month will allow you an interest rate up to about 5.5%, and rates are pretty well below that today.

If you mean that you only have $500 per month for principal and interest payments, you still _might_ be able to refinance with a new fully-amortizing ARM. There are some 5/1 ARMs in the market with interest rates as low as 2.5% for the next five years, and you might be able to buy yourself some fiscal breathing room for a while.

However, if you are having serious trouble, you might consider talking to your mortgage lender about a loan modification. The HAMP program is intended for hardship cases and you might be eligible for a reduced interest rate as low as 2% for the next five years, followed by a gradual step up back to about 5%. To see if you are eligible, visit http://www.makinghomeaffordable.gov

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.
  • Are ten-year fixed-rate mortgages (FRM) available anywhere?

    Sure! Virtually all lenders who sell product to Fannie Mae or Freddie Mac will be able to offer you mortgage with a 10-year term. However, interest rates are usually the same as the lender's 15-year offerings.

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