Refinancing When You Owe More Than Your Home Is Worth

a paper with a magnify glass that is hovering over the words 'mortgage refinance".

Many people who are struggling to make their mortgage payments will refinance their home loans to get more affordable payments, better interest rates, or to switch from an adjustable to a fixed-rate mortgage.

Unfortunately, many people saw their home values plummet over the past six years. In some cases, they find themselves ‘underwater,’ or owing more on their mortgage loan than their home is currently worth. In this situation, refinancing can be nearly impossible, because lenders expect the borrower to have built up some equity before they’ll agree to a refinance.

As a HUD-approved housing counseling agency, we look for ways to help homeowners in this situation. If you’re underwater on your mortgage and need help, we have some options we can help you explore:

  • If you haven’t missed any payments:
    • The Home Affordable Refinance Program (HARP) can help people refinance even if they owe more than the property is worth. Borrowers can refinance up to 125% of the home’s value.
    • To qualify for HARP, Freddie Mac or Fannie Mae must own your loan, you must not have missed any payments in the past year, and you may have to meet some credit score requirements.
  • If you have missed payments:
    • The Home Affordable Modification Program, or HAMP, allows you to get a mortgage modification even if you’ve missed payments and your loan is underwater. Like HARP, Freddie Mac or Fannie Mae must own your loan to be eligible for HAMP. You’ll also have to demonstrate financial hardship to qualify for this assistance.
    • The loan isn’t refinanced; it’s modified. The modification will make loan payments easier to make for the next five years, after an initial three-month trial period.
  • If you’re out of options:
    • If you don’t qualify for HARP or HAMP, but you’re underwater on your mortgage, the next step is to talk to your lender and see if there are any loan modification options available. Our housing counselors can help you reach out to your lender to see if there is any help available.
    • To avoid getting foreclosed upon if you can’t refinance, a short sale might be your best alternative. If the lender agrees to a short sale, you can sell the home and be forgiven the unpaid part of your home loan balance. This isn’t the best possible outcome, but it beats foreclosure and gets you out of an unsustainable situation.

No matter what your circumstances, housing counseling from a HUD-approved counselor can help. Call us today for a free, confidential session. We’ll help you explore your options and give you personalized advice for your unique situation.

If you want to learn more about budgeting or how to reach your financial goals, get started with our free, confidential counseling and education right here at

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined in 2003 and has over two decades of experience in the industry.

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