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?
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.