I Can't Afford to Pay My Mortgage

Upside-down. Underwater. Walking away. What sounds like a set of cues for Aquatic Twister are actually the new-age descriptors for an age-old dilemma. The problem of owing more on your home than it is worth certainly isn’t new, but the scope -- 1 in 10 American homeowners -- is. If dropping property values have added you to the class of underwater homeowners and you need to sell or refinance your home for whatever reason, you might have the makings for a freak-out on your hands, my friend.

I Know the Feeling. And the feeling is trapped. In high finance, they call a property that is eating up funds but can’t be sold for enough to clear the corresponding debt a "toxic asset." If you’re paying a monthly mortgage on a home you can’t sell for what you owe, it might seem like Wall Street has indeed come to Main Street when the home you once loved so much starts to feel like your own personal toxic asset.

If you want to hold onto your home, the payment on your interest-only ARM is about to double and your efforts at refinancing are going nowhere because you owe more than it’s worth, it’s normal to feel trapped on a path that inevitably ends at foreclosure. Can’t sell, can’t refi, can’t afford the adjusting mortgage -- the seeming lack of options can trigger a horrible sense of helplessness and perplexity: What on earth are you supposed to do?

Your Mindset Reset. How do you go from helpless to hopeful if you’re upside down on your home? Put it all in perspective. Your home, as important an asset as it is, is just that -- a building. Even if the very worst that can happen to your home (foreclosure) does happen, that is certainly not the worst thing that could ever happen to you. Real estate matters are not life or death, and putting them in their proper perspective can be the cure for those heart-pounding, flush-inducing panic sessions that happen when you hear the house two doors down just closed on a short sale for 60 percent of what you paid for yours.

And don’t be a lemming. Were you actually planning to sell your home before market values tanked, I mean, declined? I talk to would-be sellers everyday with 30-year fixed rate mortgages they can well afford, stable jobs and homes they had planned to live in until they were carried out feet first. The claustrophobia of feeling trapped in a home can cause you to panic and decide to sell, but if you weren’t planning to and don’t need to, don’t decide to just because of the market.

Shift your mindset. It is actually okay to own a home that has declined in value and just keep on owning it, especially if it works for your family and has the potential to appreciate again when the market recovers. In fact, think like a daytrader (on this one point only!) -- selling when you don’t need to at the bottom of the market locks in your losses. And that’s bad.

If you really need to sell or refinance, being upside down is a values check -- what’s really important to you? There are solutions to help you get out of your home or your loan, but some of them might have less-than-lovely implications for your credit or other downsides. Instead of viewing your situation as a tragedy, it might be the nudge you needed to get out of your comfort zone and make some hard priority choices -- choices that could have major upsides for your life over the long term, if you face them head on.

Your Drama-Free Real Estate Rx. You get to choose how you experience this unfortunate upside-downness: call to tears or call to action? If you choose action, be on the lookout for workarounds and for lessons. You can chalk your lost equity up as tuition if you find the lessons in the situation, like ways you will approach your mortgage decisions differently in the future. And when it comes to workarounds, there are dozens of potential solutions out there for upside down homeowners, ranging from short sales to creative sale structures to loan modifications and refinances under the stimulus plan.

Talk with your Realtor to see if you might be able to unload your home, despite the deficit, and check MakingHomeAffordable.com or a local loan modification attorney to see if you might be able to fix your broken ARM before it adjusts. Then take action or calculated inaction (i.e. staying put and sitting still), whichever makes you feel right side up, even if your home’s value is upside down.