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Can I get out of a bad home mortgage loan?

October 06, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: My Mobile Home interest is 8.0 percent and feel I have been ripped off. I have been living here for 17 years and my home is not worth my balance. I think I was railroaded. Should I do a short sale or can they lower my interest rate?

A: The lack of equity in your mobile home after all this time makes it sound like there is a somewhat complicated history involved that may limit your options. Even so, it is worth exploring the possibilities to see which alternatives may be open to you.

Reviewing past and current mortgage rate history

For starters, while 8 percent sounds high by today's standards, if your loan dates back to when you originally bought the mobile home 17 years ago, 8 percent does not seem so out of line. After all, current mortgage rates are about half what they were 17 years ago, and auto loan rates have experienced a similar drop over that time. Solid data on mobile home rates is not as easy to find. But since those loans can be thought of as combining some elements of both home mortgages and vehicle loans, it is reasonable to expect that they have dropped considerably in the past 17 years.

Of course, that assumes that you have had the same loan all that time, but the fact that your home is not worth your balance after all this time suggests that you have refinanced at least once. A combination of overly-aggressive refinancing and rapid depreciation of your property could well have left your loan under water. Unfortunately, that limits your options.

Options to deal with an underwater mortgage loan

Here are five possibilities at this point, depending on some of the details of your situation:

1. Refinance your mortgage

Unfortunately, your loan being under water probably eliminates most refinancing possibilities. However, it is possible that your current lender might be amenable to a rate reduction since they already own the risk of the underwater loan.

2. Use savings to retire part of the remaining loan

If you have savings accounts or other assets, you might pay the loan down to below the value of your property. This could open up more refinancing opportunities.

3. Put down savings to pay off all of the remaining loan balance

Given how low interest on savings accounts is these days, it might be worth using savings to retire the entire loan balance. Eliminating an 8 percent expense is better than earning 1 percent in deposit interest.

4. Initiate a short sale

You mention a short sale, but this would still require resources to retire the excess balance on the loan.

5. Stay in the home

If you can still afford your payments, your best option for the time being may be to stay put. After all, if you sell out, you are still going to have to pay for some other form of housing.

Your current loan rate and your lack of equity are certainly less the ideal. However, the important thing is to assess which of the above is your best option for the future, rather than trying to remake the past.

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