Jumbo loan hinders refinancing

By Ilyce Glink and Samuel J. Tamkin
Friday, January 28, 2011; 11:11 AM

Q. I am a 78-year-old retired surgeon. I took a mortgage in 2002. A stroke in 2000 retired me from practice, and I had to move into a handicap-friendly home.

My financial adviser advised me to get a big mortgage because interest rates were so low. So, the mortgage was for about $500,000 at a little above 6 percent, and the lender didn't think twice about giving it to me.

I have been paying $5,000 per month for my mortgage, taxes and insurance for the past nine years. I've never been late or missed a payment. I'm trying to refinance to lower my monthly payment and to give me a bit of a financial break. But the lenders I've talked to are shutting the door in my face.

Why? No visible income. In other words, I can pay $5,000 per month, but they don't think I can pay less. After nine years of paying $60,000 per year, I still owe close to the original $500,000.

I am scared and puzzled. Are banks there to help or are they trying to force me into bankruptcy and repossess the property? What should I do?

A.Unfortunately, current market conditions are working against you.

One problem is that your mortgage is a jumbo loan, and the market for jumbo mortgages is very limited. (Just about any loan over $417,000 is considered to be jumbo, but in some high-priced real estate markets, the jumbo amount can be higher.) Do you have any cash available to lower your loan amount to $417,000 or less? You could then, providing that your home appraises in value, get a loan with a lower interest rate, and perhaps even an FHA loan.

As far as income goes, your social security, pension, 401(k) income and other streams of income should count.

Your mortgage is a cause for concern, however. After nine years, you should have paid down a significant amount of the loan. We ran an amortization schedule at eloan.com for a $500,000 loan at 6 percent. The monthly mortgage payment on a traditional 30-year, $500,000 loan at 6 percent is about $2,997.75. The balance of what you pay per month of the $5,000 payment probably goes toward taxes and insurance payments.

It's possible that the loan you originally got was an interest-only loan for the first several years. That would mean that for those years, you only paid interest on your loan and your loan balance never decreased. At some point, the loan might have converted to a traditional loan in which your payments included both principal and interest. If this sounds familiar, then that would explain why your loan balance is close to the original loan amount.

It seems that you may be having trouble affording your monthly payments. As a retired surgeon, you might have saved a significant amount of money over the years and have a financial plan. Now would be a good time to reevaluate that plan.

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