Ask an Expert: Mortgage too high? Weigh these options

— -- Q: I am the owner of one of these "subprime" mortgages everyone is so nervous about, and now I know why. I run a home-based business and care for my two school-aged daughters. I got what I thought was a great loan, but have learned the hard way that after 2 years, my mortgage goes up $180 a month! I am now on the verge of foreclosure and will lose my business, too. Help! — Layla

A: Like many other homeowners, home-based business owners also tapped the seemingly ever-increasing rise in property value and the corresponding low interest rates the past few years to refinance their homes and use the funds for either consumer spending, business growth and expenses, or both. But now it looks as if that may not have been such a great idea.

For instance, I know someone who ran his business from his home for a decade but who never quite made enough money to make ends meet. He began to use his credit cards to pay for business expenses, food for the family, and so on, and then, every other year or so, he refinanced his house, paid off the credit cards, and started over. But now he can't do that again because his house barely appreciated the past two years. So now he has two years of credit card debt, no equity, a ballooning mortgage payment, and no recourse in sight. What will he do? He is looking for a job.

When you are in over your head with your mortgage, when foreclosure is on the horizon, you have a few options, but I must tell you, none of them are great. Here are your choices:

Short sale:If you are on the verge of foreclosure, you would work with the bank to quickly sell the property – probably for less than its worth, but at least enough to cover the mortgage. It keeps the foreclosure off of your credit report, but that's about it.

Negotiate with the lender. Often your best bet is to try and workout some sort of arrangement with the lender. If you are in trouble with your loan, it is vital that you act quickly as once the foreclosure process begins, a statutory clock begins to tick and you only have a few months before your house is sold. You will have far more leverage if you contact the lender before the clock starts ticking. There are several things the lender may agree to: