Can I Refinance for a Lower Interest Rate Having an Upside Down Mortgage?

31 Oct

Can I Refinance for a Lower Interest Rate Having an Upside Down Mortgage?

The actual estate crash of 2006 to 2008 left many homeowners with mortgage balances higher than the value of the houses. From 2010, mortgage rates had dropped to record lows, but it was hard for homeowners with home values significantly less than their mortgage accounts to refinance into a lower rate. Some lenders and government agencies instituted programs that let upside down homeowners to refinance to lower rates and lower their payments.

Authorities or Agency Insured Mortgages

If your mortgage is an FHA-insured loan or backed by a number of the government sponsored enterprises (GSEs), Fannie Mae or Freddie Mac, you might be able to refinance even if you’re upside down in your mortgage. The FHA streamline application permits a homeowner with an FHA loan to refinance the present quantity of her mortgage at a lower rate with no house appraisal. The GSEs provide what they call Home Affordable Refinance Plans, where homeowners with mortgages from these agencies may find a refinance loan for up to 125% of the home’s assessed value.


The refinance strategies in the government-sponsored mortgage lenders are designed to help homeowners that have adverse equity in their houses improve their financial situations by getting new mortgages with lower rates and payments. The plans are part of the government stability plan which was declared in February 2009. The Home Affordable Refinance Program is one part of this plan. Homeowners can decide if their home is qualified for this type of refinance through the Making Home Affordable website setup by the U.S. government.


Fannie Mae, Freddie Mac and FHA require homeowners to be present on their mortgages to be able to meet the requirements for negative equity refinancing. The programs require a homeowner to have no overdue payments in the previous 12 months. The FHA streamline application does not require credit underwriting, just evidence of employment. Fannie and Freddie require a complete credit check, along with the homeowner should satisfy the agencies’ income and credit guidelines.

Other Mortgages

Homeowners with subprime, option ARM or unsecured loans, or even a mortgage from a lender which didn’t sell the loan into one of the GSEs, have few or no options to refinance if they’re upside down. FHA, Fannie and Freddie allow upside-down refinancing due to federal programs which allow them to accept these kinds of refinance. Homeowners who have non-government-backed loans must ask their creditor if it provides any refinance plans for homeowners without any equity in their houses.

Cash-In Refinancing

“The Washington Post” reported in February 2010 that cash-in refinancing was a growing tendency. A cash-in refinance happens when a homeowner brings cash to some refinancing to purchase the amount of the loan down and eliminate any unwanted equity, to meet the loan-to-value essentials of the lending company. These homeowners wish to maintain their current house even if they’re upside down, and want to lock in a lower mortgage rate.

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