Do I have any options to lessen this financial burden?

In My Humble Opinion
1

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?

2

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.

3

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.

4

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.

5

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.

6

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.

7

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.

8

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…)