Is it possible to refinance your 1st mortgage if your combined 1st and 2nd mortgage exceed your home value?

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I bought my home in the fall of 2005 for $ 285000 with a 80/20 loan. The 80 is interest only for 5 years and the 20 is fixed. My home was valued over $ 300000 at the time so after being there 6 months I refinanced the 2nd to included my personal debt, so I could write off the interest while paying everything down. The loan is at $ 308000 currently, but now the house is only valued at $ 236000 (making it worse my neighbor has the same house and quick saled it for $ 207000 last month). I have 2 years before the 1st mortgage will add principal at a variable rate. The bank said the payment could go up $ 200 to $ 800, not to exceed 10% per year. They also said they won’t refiance the 1st because the combined loans exceed the value. I have excellent credit and what to keep it that way. I have never missed a payment, but with a yearly increase in my mortgage at those rates I will go broke. What can I do to fix it before it’s too late?

6 Comments
  1. Reply
    puppiesnmarshmellows
    May 2, 2011 at 5:50 am

    I don’t think you can. I mean someone somewhere may be willing to do it, but if you owe more than your home is worth combined the apprisal will not go through for both. I don’t know what to tell you. I’m sorry your in such a finanical pickle though.

  2. Reply
    Lexi
    May 2, 2011 at 6:34 am

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  3. Reply
    the_wicked_which
    May 2, 2011 at 7:24 am

    You can not combine the two if more than the value of your home, why not just refi the 1st into a fixed rate, 90% of the financial crisis ie foreclosures are because of ARM’s. And trust me, I work in a real estate investment firm and I buy houses every day for the mortgage balance so people don’t get foreclosed on and 99% of those people have ARM’s. Just try to refi the 1st, if not, start making higher payments now to try to adjust for thedifference. Good Luck.

  4. Reply
    Dennis G
    May 2, 2011 at 7:30 am

    A very difficult position
    Both you and the bank would benefit by extending the interest only provision for a further term. The bank is in a worse position then you are because the loan exceeds the security so they will lose a large amount if they are forced to seize and auction your home.
    I think you should try to work out a restructuring of amounts and interest with the bank that enables you to keep your home and reduce the bank’s losses.

    Inform them of your expectations and ask them for a proposal that will fit with your income.

  5. Reply
    Dale H
    May 2, 2011 at 8:15 am

    I think you are SOL. The FHA might have done it if the balance of the 1st was < 97% of the appraised value. You probably are worried too soon and possibly for no real good reason. The market may come back before the 1st starts to adjust. In two years, no one can predict what will happen. Check the index and the margin. The indexes are down even over what they were 12 months ago. If we are in a recession, chances are they will not go up sharply. I have heard that congress is supposed to be working on more mortgage reform to allow the agencies to refinance some existing loans that may fall into the same category you are in. Remain calm. Keep your ears open. Can you pay down the 2nd agressively? That might be the best bet to put you in a position to refinance your first in the future. You might even be able to convert the 2nd to an unsecured loan. Yeah, you would give up the interest deduction, but if it made it possible to refi the 1st and that is the greater need it could be worth it. Good luck

  6. Reply
    Jeromy W
    May 2, 2011 at 8:39 am

    I have to agree with Dale on this, don’t panic. At this time, there’s really nothing you can do beside sell and even that puts you at a significant loss. The good this is that the 2nd is fixed, it could be worse, it could be variable. I don’t even think you could refi the first for two reason, one, you’d still be upside down or 100% on the first, and two, I highly doubt the holder of the second will subordinate, especially is they see what your home is worth. You are correct in wanted to keep your credit, so I would do what you can to pay off the second mortgage as quickly as possible, then apply those payments to the first. You have two years for the interest only to adjust, hopefully the market is more stable and you can make a better assessment of the situation 6 months before the arm resets. good luck

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