How to Refinance an Underwater Home


To refinance an underwater home, most people are looking to get out of a negative equity situation and get into a positive equity situation.Although, there is no technically no refinance possible, it is possible to get a new loan with a loan amount less than the current value of the home. This in itself creates the effect similar to be able to refinancing an underwater home. For example, if John owes $600,000 for a home worth $400,000, then he will get a new loan for $360,000. The new loan is 90% of the current value of the home.QualificationsThe home-owner needs to be upside down by at least 25%. For example, if the home loan is worth $100,000, the home should be valued at $75,000 or less. There has to be a source of income to be able to pay the new mortgage. If there is no income source or the income is too low, there are certain work-arounds available as well. Other qualifications exist but each one of them has a workaround for it for most home-owners.Final ResultThe home-owner ends up with a new loan of 90% of the current home value thereby lowering their monthly payments and interest over the life of the loan significantly. The new loan is for a 30 year period and the interest rate is fixed for 30 years. The underwater refinance problem is definitely taken care of. For John’s example above, if his payments on a $600,000 loan at 6% are approximately $3600. With the new loan of $360,000 with his estimated value of the property to be $400,000, the new monthly payments would be approximately $2160. Every month, John saves about $1440. Over the course of a year, John will save $17,280.