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Question for the Money Doctors

Question submitted on Mar 24, 2012.

Question

My husband (who has been unemployed for 10 years now) and I (my AGI is roughly $33,800)have a home mortgage interest rate of 7.125% and a balance of $154,195 on the 30 yr. mortgage (approx. 19 hrs. left to pay). We will both turn 59 this year. We are living very frugally and still must take money from saving and cash in savings bonds to pay the mortgage each month. What are the requirements for refinancing? I''m not even sure that we would qualify for a refinance since my husband is not working. The market is definitely not right to try to sell the home. Of course the market value of the home has taken a hit also, but I think it''s still worth at least what is left to pay on the loan. What costs should we be considering and since we itemize on our federal tax return, could the lower interest paid have an adverse effect on taxes? I''m really confused.

Answer

Hi - unfortunately, your problem is not unique these days.   Many unemployed people are having trouble paying he mortgage.  And since there has been a drop in income, it is difficult to refinance to take advantage of lower rates. 

Here are a couple of suggestions:

1) If you want to continue to live in your home, you may be eligible to refinance under the "HARP" program from the government.  Go to http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx for more details and see if your qualify.  This program is designed specifically to help people like you. Essentially, it allows you to refinance up to 120% of the value of your home into a lower interest rate.  Call your mortgage company/bank to get the ball rolling.  

2) If you want to move, it sounds like you may qualify for a "Short Sale." Under a Short Sale, if you have a "hardship" (i.e. drop in income from unemployment), the bank may consider allowing you to sell the home for less than what you owe on the property and forgive the remaining balance of your mortgage at closing.  To see if you qualify for a Short Sale, contact a realtor with a CDPE designation (Certified Distressed Property Expert).  This person can help you through that process. 

I hope this helps give you some direction.  Good luck!


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