Refinancing is a great way to lower your losses on your mortgage. To refinance, you take out a new loan (with more desirable rates and terms) and use it to pay off the old loan. If you're looking to lower your monthly payments at the cost of the overall loan cost, you can pursue a longer loan term. If you're looking to lower your overall costs, look for a shorter loan term. Either way, securing a lower interest rate is always a good thing!
However, when you're underwater on your mortgage, you run into an additional challenge. Usually, banks are unwilling to write home loans which exceed the value of the property in question. That's because home loans are secured by the value of the home. If a home buyer defaults on the loan, the bank avoids losses by selling the home. So if the home is worth less than the loan and the borrower defaults, the bank loses money.
Fortunately, there are programs available for borrowers who want to refinance while underwater, especially if you have good credit. Read on to learn the steps to take to refinance while underwater.