A reader named Brian recently wrote in with the following quandary:
We own a condo in Las Vegas. It was purchased 5 years ago at a value of $200K. It currently is valued at $125K. The loan we have is for $163K and it is interest only with a 4 point margin on top of the current Fed* interest rate. We cannot re-finance because of this and feel handcuffed as a result. Can you offer any advice to me?
If you read through the comments, you’ll see that Brian and his wife are currently renting out the condo. Unfortunately, they’re paying substantially more on their mortgage than they can get in rent, and they have no prospect of moving into it to save money because they currently live in another state.
This is definitely a tough spot to be in, and I’m afraid that I don’t have any magical words of advice that would fix this situation. It’s a slow market and, even if they were able to sell for the current value of $125k, they’d have to come up with an $38k in cash to pay off the mortgage ($45.5k after factoring in a 6% realtor commission).
If they were living in the condo and hadn’t owned it for so long, I’d suggest they try getting into a more affordable FHA mortgage under the terms of the so-called Housing Rescue Bill. Unfortunately, Brian and his wife don’t qualify.
So, dear readers… Do you have any suggestions for Brian?
*It appears that the “Fed” rate in question is the prime rate (currently 5%).