How bad can mortgage loan restructuring hurt your credit?

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I am looking for a way to get out of a bad investment. I bought a house for 325 K and now its only worth $ 200,000, thanks to the current market. I owe the bank 280 K and its a negative option arm loan, so they let me pay less than interest. Soon the Bank will realize that this house is worth so little. The may force me to make a full payment and I will not be able to. The Rent I earn now barely pays the minimum payment. So I have 4 choices: 1) walk away, 2) Foreclose 3) Short Sale and 4) Loan Restructure. Do you think the last one will have the least or shortest impact on my credit? If I do it, I plan to pay the new loan on time forever. I plan to send many disputes to the credit bureaus until they erase the 90 days of skipped payments that I will have to do in order to get this approved.
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I dont think I’d like to be in my home for very long and I like the idea of having an option arm loan to lower my mortgage payment. However, my husband likes the security of a 30 year fixed because we will add more equity to the home. Are there any other alternatives? What about a 40 year fixed?

  1. Reply
    February 13, 2011 at 6:50 am

    You need to answer two questions:
    Do you plan to stay in this home for many years irrespective of price of the house. If so, try to restructure the loan. Bank does not want to own your home, they just want $ $ $ as long as you can make reasonable payment, they will work with you. The question is can you afford to make payment for $ 280K loan based on the income you bring in. If the answer is no with today’s mortgage interest rate, you are done.
    If you decide to walk away, and let the bank have the house, you are not going to get anything for 7 years. I suggest, rent the apartment first before you decide to walk out. In my view, you will not recoup your money for many years to come. Market going up that much ($ 125K increase) is not going to happen anytime soon.
    Keep in mind if you short sale, you still owe money. You are better off walking away, i.e. let them foreclose on your property.

  2. Reply
    February 13, 2011 at 7:00 am

    30 year fixed. Your Husband is right.

  3. Reply
    James S
    February 13, 2011 at 7:40 am

    with a 40 year fix the interest rate is about .25% higher and you only save about $ 40 a month on your payment
    I always recommend a 30 year fix to my clients.
    fixed rates are far lower then the arms right now as well
    I wouldn’t do a option arm it eats your equity in your home very quickly.
    Email me if you have any questions

  4. Reply
    February 13, 2011 at 8:28 am

    30 year is a good idea, but if you make 1 extra payment per year it takes 7 years off of your loan.

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