Dear Dr. Don,
My mortgage is at 9 percent. I owe $170,000 on the property, but the market value is down to about $135,000. I realize I have no equity for a refinance, but can I recast the mortgage for a lower interest rate if I maintain the same term of the loan?
-- Chuck Cast
From the point of view that "the worst they can say is 'no,'" it's worth approaching the lender to see if it is willing to work with you on recasting the loan. But it's going to be an uphill battle.
You're asking the lender to accept a lower interest rate on a loan, but the lender already has a substantial risk exposure because the loan balance is $35,000 more than the home's expected appraisal value. The only positive to the lender is that recasting the loan improves the odds you will remain in the house and stay current on the loan.
The typical recast of a fixed-rate loan takes place because the homeowner has made, or is considering, a large additional principal payment and wants it to result in a reduction in the monthly payment. The mortgage interest rate would normally stay the same.
You didn't give any details as to why your existing mortgage is at such a high rate, but if it has to do with your credit history, that makes it harder for the lender to justify a rate reduction.
The government is considering programs to help homeowners like you find a way to restructure their mortgage debt, and the restructuring may include some principal forgiveness along with lower fixed-interest rates. It's far from a done deal, but keep reading Bankrate for any news on these loan programs.