Tackling Underwater Mortgages: Strategies for Homeowners

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Owning a home is often seen as a symbol of success and stability. However, the recent housing crisis has left many homeowners struggling with one of the biggest burdens – underwater mortgages. An underwater mortgage is when a homeowner owes more on their mortgage than the current value of their home. This can happen due to a decline in the housing market, taking out a high-interest loan, or putting little to no down payment. Being in an underwater mortgage can be a stressful and overwhelming situation for homeowners. But fear not, there are strategies that homeowners can utilize to tackle this problem and get back on the path to financial stability.

1) Refinance or Loan Modification
One of the first steps homeowners should consider is refinancing or loan modification. Refinancing involves paying off the existing mortgage with a new loan that has better terms and interest rates. This can help homeowners in lowering their monthly payments and reducing the amount of interest paid over the life of the loan. Loan modification, on the other hand, involves renegotiating the terms of the existing loan with the lender. This option is best suited for homeowners who are struggling with their monthly payments but have a good payment history. Both of these options can be a lifesaver for struggling homeowners, but it’s essential to do thorough research and consult with experts before making a decision.

2) Paying Down the Principal
If you have some extra cash, consider paying down the principal amount of your mortgage. This will help in reducing the overall amount owed and get the mortgage closer to the current value of the home. Making additional payments towards the principal not only helps in reducing the balance but also decreases the amount of interest paid over the life of the loan. This may not be feasible for everyone, but it’s worth considering if you have the means to do so.

3) Rent Out a Room or Consider Airbnb
If you have extra space in your house, renting out a room or using Airbnb to short-term rent can help in generating some additional income. This extra income can come in handy in paying off the mortgage or putting it towards other expenses. However, make sure to do your due diligence and follow all the legal requirements for renting out a room or property.

4) Consider a Short Sale
A short sale is an option for homeowners who owe more on their mortgage than the current value of their home. In a short sale, the lender agrees to let the homeowner sell the property at a price lower than the outstanding mortgage balance. This can be a good option for homeowners who can no longer afford their mortgage payments or want to get out of their underwater mortgage. However, short sales do have an impact on credit scores, and it’s essential to understand the potential repercussions before going down this route.

5) Seek Government Assistance
There are various government programs available to assist homeowners with underwater mortgages. The Home Affordable Refinance Program (HARP) is a government-backed program that allows eligible homeowners to refinance their underwater mortgage. The Home Affordable Modification Program (HAMP) provides mortgage payment relief to homeowners who are struggling with their monthly payments. If you are a veteran, you can take advantage of the Veterans Affairs Housing Assistance Program. These programs have specific criteria and requirements, and homeowners should thoroughly research and consult with experts before applying.

6) Avoid a Short Sale, Foreclosure, or Deed in Lieu of Foreclosure
In desperate times, homeowners may be tempted to walk away from their mortgage and opt for a short sale, foreclosure, or deed in lieu of foreclosure. While these may seem like an easy way out, they have long-term consequences and can severely impact credit scores and future ability to obtain mortgages. It’s essential to explore other options and seek professional advice before making any drastic decisions.


In conclusion, being in an underwater mortgage is a challenging situation, but there are solutions available. It’s crucial for homeowners to stay calm, research their options, and seek professional advice. Additionally, it’s essential to have open and honest communication with the lender and be proactive in addressing the issue. By utilizing these strategies, homeowners can overcome the hurdle of an underwater mortgage and get back on track to financial stability.

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