Guest Author - Katie Murphy


Refinancing may seem like the easy way out, but it is not always a good choice. There are many different scenarios and refinancing will help with some of them, but not all of them.

The emotional stress of perhaps losing your home and the financial stress of paying for it places a very large burden on individuals and families. The first step is to sit down with an attorney to discuss the options specific to your situation.

If the home loan is gobbling up a large majority of your monthly income, and you don’t expect to see your income grow significantly or you don’t see any cash windfalls in your future, it may be a good idea to sell the home and move.

For instance, if you are paying 60% of your income toward housing, refinancing can get you in even deeper trouble. Refinancing may lower the payment, but the fees and higher interest rates will probably make up for it. Since your financial ratios are out-of-sorts, you will probably get a less favorable interest rate or, perhaps, an adjustable rate. As the rates increase, so does your payments and down the road you will not be able to make the payments again.

For an individual facing the above situation, it could likely be selling the home and moving is the best option. This could offer benefits to you: 1. you may be able to get some equity out of your home; 2. you will avoid damaging your credit; and, 3. your friends and family will be able to stand being around you again.

If your debt-to-income ratio is in pretty good shape and you are paying your bills on time, you may consider applying for a Home Equity Line of Credit a.ka. HELOC. This is something to consider if you think your situation may see a positive change in the near future. For instance, you are expecting a promotion and a pay raise or you are changing careers to a higher paying career or you need a little help until the home sells. Discuss this option with your banker to determine if it is the right move for you.

Another financial option is gaining some popularity lately: partner with an investor. This means giving up some of the equity in your home for a little peace-of-mind. Investors know in any 10-year period, real estate investments have increased in value. Perhaps you have a friend or family member that is financially flush and would like to make an investment and help you out. This is not asking for a gift or asking to borrow money you may not be able to pay back. This is a viable business solution. The caveat is to negotiate an agreement that will end in a win-win situation. Seek advice from an accountant and an attorney if you pursue this option.

Before you jump for the first lifeline, take a little time to breath and then consider all the options before you make a decision. This step may, in fact, save your home and your sanity.