If you were like many homeowners, you thought you had equity in your home and tapped into that equity by taking out a HELOC. Now you find yourself struggling to make your mortgage payments and your home is upside down. All of your efforts to negotiate a loan modification is falling on deaf ears and each time you speak with customer service they have a different story. (Or your mortgage company has lost the paperwork for the 9th time.)
Maybe you’ve already started to fall behind and now all the late charges and other fees are mounting up to something unthinkable. Maybe you’ve started to take on credit card debt so you can stay afloat. Maybe you’ve started liquidating your retirement.
So, now what? This would be a good time to have a frank discussion with yourself. Chances are, your mortgage payments are only going to continue to increase. (Let’s face it, the interest rates can’t go any lower.) And the possibility of making more money isn’t looking that great. (Besides, aren’t you working enough as is?)
Consider the following:
- How much is your home worth? This should be an obvious starting point. If your home is significantly underwater, it might be time to cut your losses.
- How much is the principal & interest payment on your home? During the housing boom, many people purchased homes that they should have never qualified for because they don’t have the income to support the payments. One good example of this are people who had negative amortized loans who are now struggling to make the adjusted payment amounts. Crunch the numbers to see how much your monthly payment should be. You can use a mortgage calculator to do this.
- Can you get rid of the second mortgage? If your home is upside down leaving the second mortgage completely unsecured, you may be able to get rid of your second mortgage in a Chapter 13. This is better than any loan modification out there because the banks don’t have a say in the matter. If the value of your home is worth less than the first mortgage, we can strip it.
- Are you draining your savings or going debt to keep your home? If you’ve been liquidating your savings or retirement - it’s time to consider getting rid of your home. Same if you’ve been going into debt to keep your home.
It’s time to let your brain sit in the driver’s seat and take a hard look at your numbers. I’ve met with many clients who will insist a loan modification is the answer to their problems but when looking at the numbers, even at 0% interest, the client could not afford their home. Remember, your home should not only provide a place for you and your family to live, but should also be a good investment. Don’t let your home ruin you and your family’s financial future.
Disclaimer: Unfortunately, it is impossible to give legal information over the internet, no matter how well researched or written. Before relying on any information I give, contact a lawyer to discuss your particular situation. I am a San Francisco bankruptcy lawyer. The information given is based on California law.
