Refinance or Sell?

We purchased a short sale home in '07.  In 2012, we did a loan modification.  The terms read: The new principal balance of my note is $461,731. $138,519 of the new principal balance shall be deferred and I will not pay interest or monthly payments on this amount. The new principal balance less the deferred principal balance shall be referred to as the interest bearing principal balance and this amount is $323,212. The interest bearing principal balance will re-amortize over 480 months.  The Deferred principal balance of $138,519 will be due on the maturity date. 

The rate was 5% and I began making new lower mortgage payments at $1,558.  It's been 8 years.  All payments (and taxes) have been made on time. Now rates have dropped.  I'm still at 5%.  I have a principal balance of $295,365 and a monthly payment of $2,356 (thanks to my $7,335 annual tax bill, my mortgage is no longer at that modified payment of $1,558p/mo). My taxes are higher than anyone I know, perhaps due to buying at the height of 2007?  I've inquired about refinancing and every phone operator says, "I can save you money" and the bottom line is my mortgage increases because that $138,519 balloon payment at the end has to be paid off to refinance.  

Feeling trapped in a bad loan!!!  Suggestions?  Appeal the taxes?  Sell for 650k (according to zillow)  and get away from the taxes and 5%? Or is there a way to refi without the mortgage payment skyrocketing?  

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  • Wow. There is a lot of things packed into this equation. It might be worth taking a deep breath, refocusing and breaking it down into smaller chunks. Also, it should be noted that advice may differ because different jurisdictions have different rules, especially when it comes to property taxes and loan configurations. Take that into consideration for any advice (including mine) you may receive.

    1. When you set up the original loan,  did you confirm that the maturity date was the end of the 480 months and not the term of the loan? There are usually two parts to mortgages - the amortization which is how they calculate the monthly payment and interest owed) and the term which is normally 3-5 years which is the interest rate for that period. It would be very good to know that information.

    2. What was your plan to pay off the deferred portion when the loan was completed? If it is at the end of the 480 months, have you been putting any dollars aside to pay for it eventually? Selling the home? You would need to know this.

    3. If you need to refinance, use the multitude of mortgage calculators to determine the monthly payment based on a variety of scenarios. What would the payment be if you refinanced the interest bearing principal and the deferred principal together? What are your interest options? What are the mortgage renewal options? A visit with a mortgage broker, your bank and any other trusted resources may be helpful to gain more information.

    4. Property tax - For me, in Canada, I can usually go to my municipality and get all the information I need on my property tax. Generally, it is very similar across every province (state equivalent) and I can find out further information. I can also make inquiries on why my property taxes have changed. I would recommend a fact finding mission on why your property taxes have changed and how they compare to your area. Once you have that information, you can again evaluate it to determine if you should appeal. There are usually set appeal periods (at least in Canada), so you will need to verify that information as well.

    5. Selling - Definitely check out other options if you are thinking of selling. Online comparisons generally are not really reliable. Unless they disclose the actual algorithms or calculations, you probably are not getting a reliable estimate. At a minimum, talk to a few different realtors. An appraiser is also an option but they do cost money. Also, what are the additional costs associated with selling? Closing fees, realtor commissions, moving costs. How has selling and buying been in your area during the current COVID-19 pandemic? How long will it take? Can you last that long?

    6. New place if selling: Where will you live? If you change from owning to renting, do you need a damage deposit or first and last month's rent? What is the difference in cost between your current place and a new place? 

    Sorry that it is long but I like to break things down into manageable pieces. I feel like when I get all of these pieces, I would have a better handle on the overall context to answer the questions. Best of luck.

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  • I'm not sure where you are located but your taxes should not be related to your loan at all nor the timing of when you bought.      You really need to separate the part of your mortgage payment that is principal and interest and not taxes or insurance to evaluate your different loan options.  

    Like 2
      • Silver Sun
      • Silver_Sun.12
      • 2 wk ago
      • Reported - view

      Herman .  I have an impound account, so my taxes and insurances are paid by my mortgage provider from my impound account.  I have the option to just pay my mortgage and pay my taxes when the bill is due or to include them with my monthly mortgage.  I recognize that my mortgage is not actually increasing, rather the taxes are increasing and my impound account is just making sure there is adequate funds to make the payment.

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      • Herman
      • herman
      • 2 wk ago
      • Reported - view

      Silver Sun Ok,  I'm not understanding then the evaluation of the bad mortgage and the large increase in taxes so i'll defer to others that have tried to help.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 2 wk ago
      • 2
      • Reported - view

      Silver Sun I don't know how your kind of loan with a balloon payment and all that works, but I know about taxes.  I bought my first house in 2004, during a very inflated market, and since my home value started rapidly decreasing, so did my taxes, and then I'd get an escrow refund at the end of the year.  Then maybe year 3 they sent me a bill to give extra cushion since now stuff was going up.  That's when I said wait a second, this is ridiculous, I'm just giving them money to hold and then they get to decide if they want more or less based on whatever metric they deem fit. Nuh-uh.  I ended the escrow sham and now save up for my tax bill myself (Thanks YNAB!).

      So, make sure you understand what your current property taxes are, and how you are taxed in your jurisdiction.  I find a lot of people who let their lender pay their taxes for them have no clue what's going on, they just look at their payment (much like an uninformed car buyer).  In my township, we are taxed based on the assessed value of our home when we bought it, and then it is adjusted no more than a certain percentage every year.  If someone were to buy my current home today, they would pay higher taxes than I do because my home value has gone up since I purchased it, but then they'd be subject to the same increase cap from there.

      For your mortgage situation, it sounds like you should talk to a reputable broker affiliated with a bank or who your Realtor works with or recommends. I just did my first successful refinance last year with Better.com, but it was a very straightforward situation. Good luck!!

      Like 2
      • Silver Sun
      • Silver_Sun.12
      • 2 wk ago
      • 1
      • Reported - view

      Annieland . Genius! Thank you for that wake up call!  Looks like they are collecting an extra $100 cushion  a month over my taxes,  insurance, principle and interest.

      Like 1
      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 2 wk ago
      • 1
      • Reported - view

      Silver Sun Yep, that's $100 you can put in a YNAB category, or spend!!  Get out of the escrow/impound racket, especially when you figure out a refinance.  Sometimes they make you do it in the beginning, then get out as soon as you can.  Reviewing property tax bills is a good habit for a citizen to have.  You should know where your money is going!  And it shouldn't be to a lender earning extra interest off you.

      Like 1
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