By Ilyce Glink and Samuel J. Tamkin
Q: I owe more on my mortgage than what my house is worth. And, unfortunately, my loan isn't owned by Freddie Mac or Fannie Mae, and it is an adjustable rate.
A: If your current lender does not participate in any of the loan modification or refinance programs, you might be out of luck if you need a refinance and you're underwater.
While you didn't mention your interest rate, you did indicate that your interest rate is variable. Recently, people with variable rate mortgages have found that they are getting a phenomenal deal. Some of them have rates that are lower than 3 percent.
On the plus side, if your current interest rate is that low, your mortgage payment should be rock bottom. If you refinanced now it would only increase your interest rate and payment. Some people in your situation are better off keeping their current loan and paying it down while they can, rather than locking in at a higher interest rate, even if it is fixed.
While interest rates are and have drifted higher, rates today are still quite low, and some observers believe that any further rise in interest rates -- if it happens at all -- will likely be moderate.
We believe interest rates could go up a couple of percentage points (to maybe 5 or 6 percent for a 30-year fixed rate mortgage) but even with that rise, rates will still be historically low and home affordability will still be reasonable.
Take a look at your mortgage documents and try to figure out which index your interest rate is tied to. Some variable-rate loans are tied to the one-year Treasury rate and others are tied to the London Interbank Offered Rate (LIBOR). In either case, you can look up that interest rate and see how your lender calculates the rate on your loan.
Usually, loan products have a cushion or differential (also known as the "margin") between the Treasury or the LIBOR rate of anywhere between 2 and 3 percent. For example if the LIBOR rate is 1 percent and differential is 3 percent, your interest rate would be 4 percent.
Your loan documents should indicate whether your loan can increase or decrease and by how much. Some loan documents limit a lender from increasing the interest rate on a loan by more than 2 percentage points in a single 12-month period. So if your loan currently is at 3 percent, you can rely on your interest rate not going higher than 5 percent on the next rate change date.
That might give you some additional comfort. Also, if you've been paying on the same loan for five or seven years, you're now far enough into your loan term that you're paying down your mortgage quite a bit faster, reducing the amount you're underwater.
Being underwater is the biggest problem you face in terms of refinance. If you don't qualify for the government's Home Affordable Refinance Program (HARP) and if your lender won't help you out, you're stuck.
But over the next 20 years, it might not matter that much. Mortgage interest rates have stayed at or below 6 percent for the past two decades. If history repeats itself (and there is no guarantee of that), then you'd do better by sticking with your original loan than refinancing into a fixed-rate mortgage.
Finally, if you're thinking about selling your home in a couple of years, the difference in interest rates isn't going to matter if you still owe your lender more than your home is worth. Then, you'll have to list your the home as a short sale and get the lender's permission to sell, or come up with the money you owe the lender, or negotiate with the lender to pay the difference after the sale, or lose the home through foreclosure.
In terms of a VA loan, you should check out the eligibility requirements for VA borrowers to see if you qualify. If you qualified at one time, you might still qualify. As a veteran, you can still obtain a VA loan subsequent to having sold a home that previously had a VA loan. For more information, go to http://www.benefits.va.gov.
(Ilyce R. Glink is the author of many books on real estate and host of "Real Estate Minute" on her YouTube.com/expertrealestatetips channel. Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her Web site, http://www.thinkglink.com.)