How can you get out of an interest only loan far more than what home is worth?

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How can you get out of an interest only loan far more than what home is worth?

Refinanced a few years back into an interest only loan far more than home is worth. Became permanently disabled on SSD since the refinance and rely on insurance checks to keep up. The checks will soon stop as they were to cover a period of 2 years and will not be able to afford the mortgage payments once they cease. Right now have good credit and not behind any payments. Would like to relocate but would never be able to sell home for what is owed. Have not been able to get any assistance since we are not behind.

Asked on January 15, 2012 under Real Estate Law, Illinois

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

There is no way to "get out" of a mortgage without losing the home, unless you do sell it--including possibly selling at a loss, which is sometimes the right decision. The lender is not obligated to let you out of the loan unless you pay it off. Options to consider:

1) See if the lender will agree to a short sale--that is, to let you sell the home for less than the principal on the loan, but to accept that as payment in full.

2) Refinance the loan, if possible.

3) Keep the house but rent it out--hopefully you will get enough to cover, or mostly cover (so at a small loss) the monthly overhead and payments--until the market rebounds.

4) See if the bank will agree to take the home as payment in full on loan--unlikely, but you can always ask.

5) File for bankruptcy--either the bank will get the home, but be unable to sue you for any remaining balance owed; or you might be able to use the leverage from bankruptcy to get the bank to agree to refinance or  modify the loan.


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