When to Refinance

A woman in her seventies called Clearpoint Credit Counseling Solutions because she could no longer afford her mortgage at a 6.75 percent rate and her house was underwater. The woman wanted to take advantage of the lower interest rates but couldn't refinance because she had no equity in the home.

Karen Metoyer, a housing and credit counselor at Clearpoint, worked with her to determine a budget and what she could afford on her Social Security income. The homeowner thought about taking a reverse mortgage but that wouldn't work either.

It turned out that the homeowner had enough income to qualify for a modification. Metoyer then worked with the woman's bank to get the interest rate on the mortgage lowered from 6.75 percent to 5 percent, which the woman could afford and which allowed her to stay in her home.

Metoyer definitely recommends that you work with a HUD-certified housing counselor, if your house is underwater, rather than try to work out your own modification or refinance. She says that having a third party negotiate the modification or refinance helps give your financial situation credibility, because the banks tend to act more quickly in that case.