What Are the Advantages of an Invertebrate Mortgage?

Many underwater homeowners are wondering, is it possible to refinance an underwater mortgage? This type of mortgage is generally considered unsecured because there is no security behind the loan. For a homeowner to qualify for a refinancing option, they must prove that there is enough equity to cover all expenses and payments. Because refinancing does not eliminate a mortgage, homeowners may not qualify for a competitive rate.



The good news is there are several refinancing options available for underwater homeowners. Depending on their situation, some refinancing options are more suitable than others. If a homeowner has a large amount of equity, a refinance may be the best option. But, for homeowners who do not have enough equity, a refinance may not be a good option.

Homeowners with a lower credit score are usually better suited for second mortgages and home equity loans. A refinance is an excellent option for these homeowners as long as they have sufficient equity in their property to cover the monthly payment. The second mortgage can be used for debt consolidation or to pay off existing debts. The homeowners will not increase their credit score as much with this refinancing option.

A third refinancing option for underwater homeowners is a balloon loan. This option is the right choice for homeowners who own a home worth less than their loan value. If a homeowner takes out a second mortgage, but their credit score is high enough to qualify for a first mortgage, they can use the extra cash to pay off higher-interest debts. The homeowner will be able to increase their credit score and possibly get a competitive rate if their credit score is high enough. Homeowners can save money if they take out a second or a third mortgage.

Many underwater homeowners also qualify for a modification. The federal Truth in Lending Act has mandated that all borrowers be provided with an opportunity to renegotiate their mortgages. The homeowners can choose to keep the same mortgage, refinance it, or get a modified loan. The federal law allows for two different refinancing options. If the homeowners qualify, they will be able to keep the same mortgage.

There are many advantages to opting for an underwater mortgage refinance. One benefit is that the interest rate on the refinance is usually lower. The rates may be slightly higher for borrowers who have been late on their mortgage payments, have missed payments, or have a low credit score. But most lenders offer a competitive refinance program when borrowers meet specific criteria.

If homeowners have an underwater mortgage, there is still time to avoid a foreclosure. When the lender forecloses, the homeowner loses his or her chance at keeping the property. He or she loses the opportunity to sell the home at a later date. With a refinance, borrowers can keep their house and pay off the existing mortgage over a more extended period. The mortgage may have a few additional years to spare. And after the homeowners save enough money to pay the mortgage in full, they no longer owe the lender the mortgage’s money.

But if the homeowners do not qualify for an underwater mortgage refinance, there is still hope. Borrowers can use the equity in their homes to refinance. Equity is created by multiplying the amount of money owed on the house by the house’s current value. Then, the homeowners just have to negotiate with the lender to reduce the monthly payment or to include the principal in the charge. But again, borrowers must be aware that they must make all of the payments and not just a portion of them.