There may be a way to reduce the principal amount on your mortgage that could help you re-finance at a lower mortgage rate. NO GUARANTEES! Many properties are “upside down” these days which means the loan amount on the home is actually higher than the market value of the property. In many cases with such homes, the homeowner begins to ask themselves “Why am I paying a higher rate and large monthly mortgage payments for a home that won’t return any value (money) to me in the future?”
Many times, the homeowner lets it go and walks away from the property leaving the lender to foreclose or perhaps sell the loan (also called note, trust deed, mortgage) at a discount to a purchaser/investor. The purchaser then tries to contact the homeowner to work out different terms of payment or continues with the foreclosure process if the homeowner is unable or unwilling to discuss the matter. Sometimes, lenders discount these notes 30,40, even 50% or more in extreme cases. You need some kind of financial relief so you might consider approaching your lender prior to them selling that note to an investor.
Generally, you contact the Loss Mitigation department to try to resolve such matters. It is somewhat similar to a “short-sale”. A short-sale occurs when a seller receives an offer from a buyer that is less than the loan amount on the property. When this occurs, and the seller is having financial problems they can substantiate, the lender sometimes agrees to reduce the amount of the loan so that a transaction can occur and the lender recovers more money than they would if they had to discount the Note.
Do the math and figure out how much you can afford to pay based on your current situation. Approach the lender, tell them your situation and ask if there is a way they could discount the note and allow you to keep the property and continue paying a smaller monthly mortgage amount. If you can obtain a reduction in the amount of principal and qualify for a lower interest rate loan, you may be able to stay in the house and even make something on it in the future.
The fact is, loans are discounted everyday by lenders. They have been doing a lot of it lately. If you read the papers, many lenders are declaring billions in losses from mortgage “write downs”. They are actually discounting the balance of these loans on their books for accounting purposes and selling them to investors at lower prices so why not you? One thing is certain; if you don’t try, it won’t happen. If you do try, it could be of great benefit to you. No guarantees as I said, but “nothing ventured, nothing gained”. Don't hide from the problem with your lender, they have a good idea of the situation if you haven't been able to make payments.
One last point; if the lender agrees to discount your note, it could have tax ramifications so be sure to check with your accountant as to what those might entail.