Do I have any options to lessen this financial burden?

Okay, here’s the situation:

I have a rental property that is financed at 7.5% (from 2007). I am probably $70,000.00 upside down. The only current way I can continue to make the mortgage payments is to take the money from my 401K turned IRA, which generates a 10% penalty to the IRS. Or get the rate reduced so that the payment is closer to the rent I receive. But I can’t refinance with this sort of a deficit, right?

I know there are programs for home owners in trouble, but this isn’t my home.

I’m just trying to slow the bleeding down…

Do I have any other options available to me that I am unaware of?

If the loan is backed by Fannie Mae or Freddie Mac and the account is in good standing you could refinance through HARP. It doesn’t matter that you don’t live there.

If you’re that far upside down on a rental, you should really at least consider bailing on it. A real estate attorney could explain your possible liabilities in your particular situation.

My sister went through the whole HARP refi process. They wanted $4,000 in up front fees to lower her interest rate about 1%, but upside down private mortgage insurance is more expensive so she would only save like $30 a month. YMMV of course, and it couldn’t hurt to ask. I believe she was originally in the mid 5% range though, maybe there’s more savings to be had in your case.

Look at it as a percentage of the worth of the property. If it is worth $7 million, $70 isn’t a big deal… if it is worth $700k, you are probably still ok… if it is worth $100k you are screwed.

I’d also say you should give serious consideration to bailing out. This is a business decision, not a matter of personal honor.

If you do decide to bail, don’t continue to collect rent after you stop making mortgage payments – that is known as equity skimming and will have the FBI on your tail.

Yeah, I’m screwed.

I don’t know what to do. Maybe I should consider a short sale? I’m not entirely sure how that works, but I’m running out of money.

Thanks everyone.

I’m afraid I may have to agree with the others then that you should consider bailing on it. BUT… get a lawyer first to make sure you aren’t getting yourself into any worse shape.

This is a really really bad idea. Not only do you have the 10% penalty, but you have to pay taxes on it as regular income. So, for every dollar you are taking out you are only getting ~65 cents. (And you are missing out on the investment growth for your retirement…)