Interest rate is going up, meaning a payment increase, but is refinancing the best option?

User question: I refinanced my home four years ago. My current interest rate is 6.5% and at the end of fifth year, my interest rate will go up to 7.5%. This is a 30 year fixed. I am looking at an added $200 to $250 payment increase. With the debt of other bills, I don't think I will be able to afford the increase.

Do you have any suggestions on what I should do? I spoke with my mortgage company and the representative told me I needed to refinance? That didn't sound right to me and honestly the way the market is, I will never get a bank to refinance since my home is not worth the amount of my current loan.

Answer from blueroof.com: Thanks for the question and this is one we are getting more and more often.

A loan modification is a great way to go if you can get the bank to work with you and provide a long-term solution. The dilemma is, from our clients experiences, it is fairly difficult to get the bank to come up with a solution that truly benefits the client.

So my advice is to always try to get a loan modification but also have a back up plan in case the bank does not have a solution that works for you.

Refinancing may actually be a valid option even if you currently owe more than your home is worth. However I would need to know more about your current loan to provide any answers on that. I would recommend you call Edwin or Jesus at Academy Mortgage at 480-344-3664 to find out if refinancing is a valid option.

If neither of those solutions work out (which sadly is often times the case) the next best alternative would be to Short Sale. Short Sales can be a fairly complicated process which is why it's important that you work with an agency that specializes in doing these types of transactions.

If I can give one bit of advice, please do not go spending thousands of dollars on a Short Sale or Loan Modification. Sadly there are many companies out there who are more than happy to accept large payments and in our experience it's just not necessary, and is usually the first sign to run.

As always please keep in mind that each scenario is unique so it's very difficult to give you a specific solution without knowing the details of your circumstances.

As always, feel free to call me directly or send an email if you would like to get more specific with regards to your individual circumstance or have any additional questions. If you have any further questions contact me at Nate@blueroof.com or 480-966-8326.

Nate Green
Designated Broker for Blue Roof Realty

Please note that ABC15.com, and its paying advertiser blueroof.com which answered this question, are not qualified to offer tax advice and the best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.