What to do with low house value and high mortgage?

Delaine
What options do I have when the value of my house is lower then my current mortgage balance, yet I would like to refinance? The difference is about 12-15k. My mortgage which is an ARM has a locked rate for 5 years which would update in 2012. I would like to get a lower rate (current rate is 7%) and get out of my ARM to a fixed, but need sound financial advice on if this is even something I should consider. Thanks

Maurice
The only thing you could do is come up with cash and get your balance down to where it is about 80% of the value of the house. No bank is going to refinance the loan while you are underwater/upside down.Your best bet is to continue to pay down the mortgage until at least 2011, hope real estate prices bounce back somewhat and that interest rates don't go way up.

Dara
Start making higher payments... irregardless of what the ARM agreement was. You are most likely doing the interest only option and are never going to make a dent into the principal owed.You can't refinance when you are upside down (owe more than the house is worth) - so don't worry about which offer to take... because there won't be any.Start evaluating why you own this house... Is it a place to call home or just a temporary investment that was supposed to gain in value and then be sold for profit.If you can see yourself in this house for years to come... then pay off the mortgage and forget the fact that you are upside down right now.Markets change with time and this one will eventually turn again too.But it will take years... way past the 2012 deadline to be exact..If you can't afford it... then evaluate what your options are when the ARM resets in 2012. The worst scenario has you stop making any mortgage payments 6 months before the 2012 reset and then turn the keys in when you go into foreclosure. But make sure you have the cash cushion to start over as a renter.