Answer: If you’re on track saving for retirement and your child’s college education, then the smart thing would be to gut it out and get the property paid off. You’re so close to the end of this loan that the majority of your payments go toward principal. Refinancing might lower your payments, but would dramatically increase the amount of interest you’d pay over time.

If you’re stinting your savings, though, the math gets more complicated. You could view the paid-off vacation home as an asset you could tap later for retirement expenses or college. In that case, getting it paid off on the current schedule would make sense. If selling or borrowing against the home in the future isn’t an option, though, then lowering your payments so you can save for your other goals starts to make some sense.

If that’s the option you choose, consider a 15-year loan rather than a 30-year loan. The shorter loan will still dramatically reduce your payment but you’ll pay about 60% less interest over time.

Answer: If your loan was backed by Fannie Mae or Freddie Mac, and if it was originated before June 1, 2009, you may be in luck, thanks to recent improvements to the federal government’s Home Affordable Refinance Program, or HARP.

Federal officials eliminated certain fees and barriers that made lenders reluctant to refinance underwater mortgages. They also eliminated the limit on how far underwater you could be to get help. In the past, you could owe no more than 125% of a home’s value.

You’ll first need to find out whether you have a Fannie Mae or Freddie Mac loan. You can visit http://www.fanniemae.com/loanlookup or call (800) 7FANNIE ([800] 732-6643). You’ll find information for Freddie Mac at http://www.freddiemac.com/corporate or by calling (800) FREDDIE ([800] 373-3343). The toll-free numbers are open from 5 a.m. to 5 p.m. Pacific time.

Borrowers must be current on their mortgage payments with no late payments in the previous six months and no more than one late payment in the previous 12 months. Loans that have been refinanced under the old HARP guidelines aren’t eligible for another refinance.

If your lender isn’t offering HARP refinances, you can search for others that are. You may want to contact a counselor approved by the Department of Housing and Urban Development (referrals at http://www.hud.gov) to help you through the process.

Don’t make the mistake of entering “HARP” or “Home Affordable Refinance Program” into a search engine. Most of the links that will turn up will be to for-profit sites, not all of them reputable. For the real deal, visit http://www.makinghomeaffordable.gov or call (888) 995-HOPE ([888] 995-4673).

Answer: Your lender isn’t under any obligation to help you save money. As a result — and as you’ve discovered — there’s often little advantage in sticking with the lender you have.

Whenever you refinance, you should shop and shop hard. Applying with at least two lenders will allow you to compare refinancing deals. It’s possible that another lender would have given you a low appraisal as well, but at least you wouldn’t be held captive in the way you are now.

If you want to continue with this lender and expect to remain in the home for more than a few years, bring the cash to the closing so you can pay down your loan balance to the point where you won’t need mortgage insurance.

Answer: There’s a lot of finger-pointing going on right now about why more mortgage modifications aren’t being done, but few would argue that lenders are doing a terrible job of communicating with their customers. You might want to consider enlisting the help of a housing counselor approved by the Department of Housing and Urban Development in your quest. The counselors’ services are free or low cost, and you can get referrals at http://www.hud.gov. Good luck.

We paid the minimum monthly payment required, which didn’t cover all the interest owed, so that amount was added to our mortgage balance. Like others, we have experienced the nightmare of the current housing market, and with the negative amortization adding on even more debt, we are severely underwater.

We’ve worked with two companies trying to get a workable loan modification but to no avail. The bank is not cooperating at all.

A lawyer I consulted is advising us not to pay at all going forward, saying that the upside-down home isn’t worth saving or worth the grief. She told us to put our payment amounts into savings so that we have something to live on after we have to leave the home, which I so far have been able to do. But I’m worried about the potential fallout.

Would we be required to pay taxes on the remaining balance we owe after a foreclosure? If we can’t afford to pay the taxes on $200,000 of untaxed income (that we really didn’t earn), what do we do then? Does bankruptcy help with that?

Answer: When a lender cancels or “forgives” debt, it typically sends you a Form 1099 for the amount of forgiven debt. This amount usually must be included as income on your tax return. But there’s a big exception when it comes to mortgage debt secured by your primary residence.

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows you to exclude from your income the debt that’s left over after a foreclosure. The law applies for the calendar years 2007 through 2012.

You can find more information about the act in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, as well as in IRS news release IR-2008-17.

In some cases, lenders aren’t content to write off the excess debt and instead decide to pursue homeowners after foreclosure for the remaining balance owed. You may be protected by state law from such a lawsuit (as homeowners in California typically are), but you’ll want to discuss this possibility with your attorney. If you are hit with such a lawsuit, you may need to consider filing for bankruptcy.

Answer: Unfortunately, your experience is all too common — and too often people waiting for an answer from their lender wind up losing their homes to foreclosure. Lenders’ poorly trained and poorly staffed loan modification departments have created endless nightmares for homeowners trying to avoid foreclosure.

You should immediately enlist the help of a counselor approved by the U.S. Department of Housing and Urban Development. You can get referrals from http://www.hud.gov or by calling (800) 569-4287. The advice is free or low-cost. A counselor can help assess your situation, offer alternatives and guide you through the modification process — if a modification is still an option.

You also should read attorney Stephen Elias’ excellent book “The Foreclosure Survival Guide: Keep Your House or Walk Away With Money in Your Pocket.”

What you shouldn’t do is expect the lender to do the “right” thing, including honoring any promises or commitments made to you. The people who get loan modifications have to be tenacious, persistent and savvy about the process.

Changes to the vastly-underused Home Affordable Refinance Program (HARP) could actually help as many as 1.6 million homeowners refinance into a more affordable mortgage. It won’t matter how far underwater you are: as long as you’re employed and current on your mortgage, you can qualify for a refinance. (Current means no late payments in the prior six months, and no more than one late in the past 12 months.) Most importantly, you’re not stuck trying to deal with your current lender. You can shop around.

So many government proposals to help homeowners have fallen so far short that it’s tempting to be cynical about yet another announcement of change. But look under the hood of these changes, and you’ll see that federal regulators are abolishing or at least reducing many of the obstacles that kept a lot of people from taking advantage of some of the lowest interest rates in generations. Estimates of how many homeowners could be helped have ranged from 800,000 to 1.6 million.

Granted, this kind of help should have come a long time ago, but it didn’t. Here’s what you need to know now:

Fannie and Freddie loans only. The HARP program covers only loans for primary residences sold to Fannie Mae and Freddie Mac, the taxpayer-owned mortgage investors that currently buy 90% of mortgages. The new, easier refinancing applies only to loans turned over to the agencies before June 2009. To find out if either agency owns your mortgage, check here at Fannie Mae and here at Freddie Mac. When radio host Bob McCormick and I were answering questions about the program this morning on KFWB, we heard from some investors who were hoping for help with rental properties, but that’s not who the HARP program was meant to serve. FHA, VA and USDA loans are not covered; neither are jumbo loans or “portfolio” loans–those kept by the lender, rather than sold to Fannie or Freddie. You’re also not eligible if you already refinanced under HARP.

LTV limit goes away. Under the current program, you can’t qualify for a refinance is you owe more than 125% of the value of your home (your “loan to value” or LTV), and many of the lenders who bothered wouldn’t make loans if you were over 105%. The new version eliminates the limit, although you still have to have less than 20% equity (if your loan is less than 80% of your home value, you won’t qualify for refinancing under this program).

The refi process is streamlined. Typically, requirements for appraisals and extensive underwriting will disappear. That’s because banks are going to be shielded from “buy back” risk from Fannie and Freddie. The threat that they might have to take the loans back has made lenders extra-careful about the loans they make–which means many loans aren’t being made at all. You’ll need to provide proof of employment or another regular source of income, but you won’t need to pay for an appraisal upfront or submit reams of documentation.

Mortgage insurers are on board. Another obstacle to refinancing is private mortgage insurers that have refused to transfer coverage. These insurers have promised to make transfers much easier under the new HARP rules.

Second mortgage lenders are on board. If you have a home equity loan or line of credit, you’ve typically needed to get that lender’s permission to refinance, a process known as re-subordination. Recalcitrant or overloaded second mortgage lenders have prevented plenty of refinancings in the past, but federal officials say the largest lenders have now agreed to automatically re-subordinate second mortgages under HARP.

Risk fees can be waived. Fannie and Freddie have agreed to waive the fees they were charging for riskier borrowers if those borrowers opted for a shorter-term mortgage than the one they currently have. Refinancing into a 15-year mortgage, then, from your current 30-year loan could save you some dough. If you’ve missed previous refinance opportunities because you were under water and you’re several years into your loan, you may find that your new payment isn’t significantly higher than your old one.

Final details of the changes are scheduled to be submitted to lenders by Nov. 15. If you think you may qualify, line up a chat with a HUD-approved housing counselor (find one here) and get ready to take advantage of a government program that could actually help you stay in your home.

Answer: If it were in banks’ best interests to make sure their home loans remained in good standing, we probably wouldn’t be in the real estate mess we’re in today. Banks would have been far more willing to refinance or modify loans than they have been.

In fact, most banks don’t hang on to the loans they make. The loans are sold to investors, and the bank becomes the loan servicer, essentially just processing the payments.

Once you understand that, you understand that a refinance is, in fact, a new loan that must meet the criteria of the investors that will eventually buy the loan. Today, the vast majority of home loans are purchased by Fannie Mae and Freddie Mac, taxpayer-owned entities that already have billions of dollars in bad loans on their books. They aren’t interested in adding any more.

Answer: Refinancing to a 30-year loan can certainly make sense for people who want to lock in the lowest payment and maintain their financial flexibility in the face of possible financial setbacks. You’re also right that this couple seems disciplined enough to make the extra payments to get the loan retired before they do.

However, you missed a key factor: This well-disciplined couple had a mortgage with an interest rate of 5.875%. That indicates they’ve had this mortgage for a while. If they’ve paid down enough of the principal balance, they may be able to refinance to a 15-year loan with a significantly lower interest rate (as in slightly over 3%) without dramatically raising their payments. Many people, when faced with that option, would want to lock in the lower rate.

Answer: If you don’t have a down payment saved, you aren’t ready to be homeowners.

Homeownership is expensive, with lots of unexpected costs constantly popping up. Some are relatively minor, like having to replace a worn-out appliance, while others are major, such as having to replace a furnace or a roof.

That’s why homeownership isn’t a good idea for people who aren’t already in the habit of living below their means and saving a decent proportion of their incomes.

Take the next year or so to tweak your spending and save up a down payment. You’ll need at least a 3.5% down payment to qualify for an FHA loan. A bigger down payment will give you more loan options and won’t leave you upside down on your home from the first day. A 20% down payment is often best, since you can avoid private mortgage insurance.

A year also will give you time to polish those credit scores from “OK” to “good.” The higher your scores, the better the interest rate you’ll receive.

But the fact that you’re receiving a “bad report” from your bank is worrisome. You don’t specify what happened, but anything that could be reported to the credit bureaus, such as a missed credit card payment, could cause major damage to your scores. Simply switching to another institution won’t prevent that. And if you’ve piled up a bunch of bounced checks, your credit reports may not be damaged but you could find it difficult to open new accounts at other financial institutions.

Whatever happened, you should try to straighten it out with the bank before you decamp, even if you ultimately decide to switch accounts.