How and When to Refinance a Mortgage

by JCR in Lancaster, PA, by Ed in San Diego, CA, and by Tom in Baltimore, MD

Ask Kate how and when to refinance a mortgage: JCR tells me although they paid the mortgage faithfully, those who have been irresponsible are getting more breaks. Ed asks how and when to refi, and what type of refinance program would be appropriate. Tom is told by his lender that he can't refinance because he owes more than the house is worth and he's current on his mortgage payments.


Refinancing My Mortgage

By JCR in Lancaster, PA
Refinancing My Mortgage

We have paid our mortgage faithfully, have excellent credit, but my husband's current job is less than what we were making when we purchased our home.

We have looked into refinancing but have been turned down due to level of income and LTV (loan-to-value), also due to the fact that we refinanced after June of 2009.

Now that the current interest rates are climbing, it may become useless for us to refi.

We desperately need to lower our monthly payments. If we qualified for a loan modification and our payments could be lowered several hundred a month, we would be able to save our home.

We even tried falling behind in our payments to see if that would make us qualify and our hardship would be proven.

We are caught up with our mortgage, but honestly, it seems like those that have been irresponsible are getting more breaks than those who have been paying their mortgages down faithfully.

Is there anything we can do?

Our current lender turned us down saying that we have too much equity in our home to qualify. We are considered right on the edge of affording to sell our home and down-size because of its equity, yet it is not enough equity to qualify us for a loan.

And what is "equity" at this time in our housing market anyway? It is such a relative word...

***zz-portrait-left.shtml*** Ask Kate answers: Refinancing My Mortgage


I can feel your agony as I read your letter. It sounds like you are caught between being overly qualified for HAMP modification yet under-qualified for HARP refinancing.

By the way, homeowners should know that HARP guidelines allow for equity as high as 19.9% and there is no limit to negative equity.

That being said, lenders are famous for adding their own guidelines called overlays. Read more at HARP 2 Program Guidelines vs Infuriating Lender Overlays.

If HAMP and HARP are not options, the other Making Home Affordable Programs fall under HAFA foreclosure alternatives, including as you mentioned, short sale.

Refinancing with the FHA Loan

Another idea, is refinancing with an FHA loan. This could work around the equity issue, perhaps. Of course there are loan amount limitations depending on the location of your property and the issue of paying mortgage insurance premiums.

Even so, it might be something to look into. Read more at Mortgage News: Maximum FHA Loan Limits.

As far as the meaning of equity in today's real estate market, well, I hear you. It's very relative indeed.

Best wishes,


Refinance Strategy

By Ed C. in San Diego, CA
Refinance Strategy


We own a rental in Arlington VA, owe 420K, valued at 580K, paying 3.125 variable that just came off the 5/1 ARM.

We want to keep it for 10 to 13 years from now and would like advice on how and when to refi, and what type of refinance program.

Appreciate any help! Ed

***zz-portrait-left.shtml*** Ask Kate answers: Refinance Strategy

Hi Ed,

Depending on the amount your ARM can adjust annually, you might consider delaying a year or two to take advantage of the below market adjustable rate before refinancing your mortgage.

I doubt you are going to get anything near 3.25% on a fixed rate investor loan if you refinance today. Of course, on the flip side, you run the risk of the market tanking before you get the rate locked in.

How to Compare Good Faith Estimates

So here's what I'd do. I'd ask lenders for a couple of Good Faith Estimates, one for a 30 year fixed, another for a 15 year fixed. Compare the payments to the next couple of worst-case scenario years on your current loan, taking into consideration how much equity you'll lose by refinancing since you will be selling the home before you pay off the mortgage.

You could also check to see if rates on a 10 year fixed are lower since that coincides with your timeline. Read the terms carefully, being on the outlook for balloons, prepayment penalties, negative amortization, and rate adjustments.

Go here for help with comparing Good Faith Estimates and determing if it's worthwhile to refi your mortgage.

Best wishes,


Mortgage Refinance

By Tom in Baltimore, MD
Ask Kate about Mortgage Refinance by Tom in Baltimore, MD

Hi Kate,

I owe a home in New York State which I used to live in. The property is currently rented out, my loan is not Fannie or Freddie Mac backed. I live in another state now.

I have not been able to refinance because I owe more than the house is worth and I am current on my payments.

The lender notified me that they no longer do refinancing. How do I get refinanced out of the current loan at 9% into a lower rate?

***zz-portrait-left.shtml*** Ask Kate answers: Mortgage Refinance

Hi Tom,

I think you'll be hard pressed to find a bank willing to refinance an underwater rental property financed with a mortgage that is ineligible for the HARP program.

You could consider consulting your loan servicer about HAMP or in-house modifications. Making Home Affordable opened up modifications to rental properties under the HAMP Tier Two Program but claims that mortgage payments must be delinquent to qualify.

But I do not recommend going into delinquency without first talking to your loan servicer and getting some type of commitment. Even then it is risky business to stop making payments in hopes of qualifying for a modification of loan terms.

But 9% is too stinkin' high! I certainly wish you the best results in lowering the cost of your mortgage. Read more here about in-house modifications and underwater rental property loans here.

Good luck,

P.S. Always get in touch with a HUD housing counselor about your personal qualifications. These housing experts may possibly intervene with uncooperative participating lenders. They will also refer you to a local non-profit group who could have some ideas.

Realistically speaking, many of these initiatives do not favor rental properties. So do your best to get your ducks (paperwork) in a row and be prepared with an explanation of hardship, if that is the case for you.


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