How Do We Refinance Our Interest Only Mortgage With Bad Credit? – Morga

“Dear Andy,

We have a loan through American Home Mortgage I assume this is Bank of America. Right now it is an interest only loan with a rate of 6.75. There is no way to get it refinanced right now as credit ratings are poor. We have concentrated on getting everything paid off.

How would I or can I go about getting the interest rate dropped on this loan without being able to refinance?


Hi Morga,

This is a popular question. The first instinct for most is to refinance, but for many, that’s not possible due to either credit, equity, or employment issues. You could always continue on the path of restoring your credit, with an eye towards conventional refinancing when possible. It could be 6 mos, a year, or more. A local mortgage expert should be able to work with you to devise a strategy that will get you there.

For more immediate solutions, you may want to look into some of the home retention options available. Just last month the Home Affordable Refinance Program (HARP) was changed up a bit to ease the eligibility requirements. Originally this program was rolled out as part of the governments Home Affordable suite of programs. It helped some people, but the overall consensus is that to date, it has been a dismal failure. This program was supposed to help more than 4 Million homeowners, but most reports show that it helped less than 900k people altogether.

This program requires that you remain current on mortgage payments, have a loan to value (LTV) greater than 125%, and have a loan backed by a GSE (Fannie/Freddie) to qualify. The program is implemented by your lender, so I would suggest that you give them a call directly to find out if you qualify. I would probably try this first because it doesn’t require that you fall behind on payments, so you wouldn’t be risking much (other than time) to look into it.

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Another option may be loan modification. This allows your lender to modify the terms of your existing loan, without refinancing into a new loan. The benefits of a modification include reducing the interest rate, extending the term of the loan (length), and/or capitalizing any missed payments back into the loan. Most lenders offer a few different modification programs, both government and in-house. Like the HARP refinance program you should call your lender directly to find out if and how to qualify.

One very important note about modifications. In my experience you will never qualify unless you are past due on mortgage payments. I have seen many people try, while remaining current, and have never once seen one approved. You will never know in advance whether you will qualify, so missing payments just to modify your loan can be risky. Your credit rating will suffer as a result, and if it goes on for too long, you could eventually face foreclosure. Being in review for a modification DOES NOT protect you from the implications of missed payments. My suggestion is that if you find yourself behind, do your best to remain as close to current as possible, while you wait for a response on the modification.

To answer your initial question. I believe you are talking about American Home Mortgage Servicing (AHMSI). They are not the same company as Bank of America, but they do participate in most government-backed retention programs, so those options would be about the same. The best numbers I have for AHMSI are either the general number (877) 304-3100, or the number for the modification dept (866) 612-3747. My advice is to call them directly and discuss the options above.

Good luck and please keep us posted on your progress in the comment section below.

Best Regards,

Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.

If you have a mortgage, short sale, real estate, or loan modification question you’d like to ask just use the online form. I’m happy to help you totally for free.

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Broker/Owner of Northeast Properties – real estate brokerage
President/Owner of Northeast Settlement Group – performance based debt relief

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