If you have been making interest-only payments for a while, you might be nearing the end of the period in which you are allowed to do so. You might not feel financially able to take on a higher monthly payment - is it time to refinance or just sell and find a more manageable property?

Option 1: Refinancing

Refinancing has the benefit of allowing you to stay where you are and avoid the cost of a re-relocation. Especially if you have strong neighborhood ties, need to stay near particular schools, or have family nearby - staying put may be your better option. If you decide to refinance it is important to remember that refinancing begins a new time period for a particular loan. If you refinance on a 30-year loan, the 30 years begins again at the point at which you refinance. The positive side is that your house may have increased enough in value during the period of time you have been paying to allow you a cash-out refinancing after which you could use the cash for other needs.

Refinancing is also a good option if you will be able to refinance into a better mortgage rate than your existing one. If you find this is the case, be careful taking an adjustable rate mortgage that could rise to an unmanageable payment burden down the road. If you have an interest-only loan however, you might not be able to arrange lower payments even if you refinance. If you are refinancing in order to avoid foreclosure, it might pay to look around for the right lender who can provide you the best rate and a little breathing room while you re-evaluate your situation. Loan modification might also be an option to foreclosure. Similar to refinancing, a loan modification involves your original lender granting you a new loan to pay off the first one without re-applying.

Option 2: Sell

Maybe your children have moved out of the house permanently and you are looking to downsize? Have you been offered a better job in another city or state? Has your job changed since you moved into your current house and your commute is barely manageable? Aside from your mortgage payment, there are many reasons a move might benefit you personally and professionally. If this is the case (and the move has the added benefit of lowering your monthly expenses), moving may be a good option for you. However, moving solely to lower your monthly payment may not add up to significant savings after you factor in the costs of moving. Add up the expected cost of your move including real estate commissions, moving expenses, closing costs, and redecorating and make sure this amount still makes the move worth it. Also consider how long you are likely to be in your new house? Do you find yourself moving frequently?

If you are considering selling because of an impending foreclosure, try to find a seller before the foreclosure date so you can pay off your debt and avoid the foreclosure process. Remember that foreclosure is an expensive process for the lender as well. Discuss the possibility of a short sale in which the mortgage holder approves the sale of the property for the total market value.

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