4 ways to escape 'underwater' home

Home Sale Hindsight

Q: I purchased a home five years ago with an 80/20 home loan. (FYI — I have a 10-year balloon on my $40,000 second loan, which has a 9 percent interest rate, and my first is at 7 percent.) The bank encouraged me to do two loans to avoid paying mortgage insurance. However, the market changed within six months of my purchase. Now I’m "underwater" and I can’t refinance.

My house was on the market for seven months, to no avail — some of the homes on my street have been foreclosures that sold for nearly half of the value! Now, I need to retire in a few months due to the poor health of both parents. My income will be reduced. Can you tell me if I qualify for a loan modification program? Do I have any other options? –Jacqueline, Memphis

A: Too often on today’s market, homeowners start flailing around and making moves based on what they read and hear about the market, despite the fact that nothing has actually changed in their personal situation. So let’s start by taking a look at what hasn’t changed for you.

Your balloon payment isn’t due for another five years. You haven’t mentioned that your mortgage is adjusting anytime soon. Sure, the interest rate is quite a bit higher than the current rate, but it doesn’t seem as though your mortgage payment has or will increase anytime soon.