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Refinance or Loan Modification?


An increasing number of homeowners are finding themselves in desperate straits where they are no longer able to afford their home mortgages. This could be due to a variety of different reasons. One of the most common reasons that many homeowners today have found themselves in this type of situation is the result of an adjustable mortgage rate that has suddenly increased, making monthly mortgage payments unaffordable. The loss of a job or a medical situation could also create a difficult financial situation as well.

Two of the most commonly used options for getting out of this type of situation are refinancing and loan modification. The two options are not the same; however, and in deciding which option you should use it is critical to understand the difference between the two. When you choose to modify your loan, you will keep the same loan. When you refinance your loan, you will obtain a new loan, hopefully at better rates, and pay off the old loan with the new loan.

Loan Modification

In order to modify your existing mortgage loan, you will need to work through your lender. A loan modification involves modifying the existing terms of the loan to more favorable terms. Lenders typically require extenuating circumstances before they will agree to modify your loan. Such circumstances might include a change in your employment status, a loan that has become unaffordable due to the variable interest rate or the fact that you are seriously delinquent on your payments.

The advantage to modifying your loan is that you do not have to worry about having a high credit score in order to qualify, as is the case with a refinance. Your ability to qualify will actually be based upon your hardship. Also, you will not have any additional charges added to your mortgage and you will not have to pay any appraisal fees, points, title insurance fees, etc.

Of course, there are also some disadvantages as well. In many cases, a lender will not agree to modify a loan unless you can demonstrate that you are experiencing a serious hardship. Most lenders will not even discuss loan modification unless you are already behind on your payments. In addition, it can take some time to work out a loan modification. It can take between 30 and 180 days to have everything settled for your loan modification.

Also, you should be aware that you may not be able to work out a loan modification if your lender has sold your loan on the secondary market. Quite a number of lenders actually do exercise this policy, which means that a number of homeowners may not be able to qualify for a modification at all. We can connect you with specialists that could help you modify your loan here.

Refinancing

Refinancing can certainly be a good option under certain circumstances. With a refinance, you pay off your existing mortgage with a new loan. One of the main advantages of refinancing is that it can be handled in much less time than a loan modification. Generally, refinancing can be handled within 60 days or less. Another advantage of refinancing your loan is that you can often obtain better terms than you have with your existing mortgage.

Furthermore, refinancing can often provide you with a variety of options. Many people choose to refinance in order to lower their monthly payments, but refinancing can also provide you with the ability to tap into some of the equity in your home, which can give you the opportunity to pay other bills.

Also, you do not have to use the same lender that has your current mortgage. It is a good idea to shop around among different lenders in order to find the best terms possible.

There are some drawbacks to refinancing that you need to be aware of. In order to be approved to refinance your loan, you will need to have a much better credit score than would be needed for a loan modification. Also, when you refinance you must be prepared to pay lender fees, closing costs, escrow fees, taxes, lender fees and home appraisal fees. Often, the fees can be rolled into the mortgage, which allows you to spread them out over the monthly payments, but that means that the overall amount you pay back will be increased as well. If you think there are great benefits to refinancing your home to take advantage of the low interest rate, you can get custom refinancing rate quotes from up to 4 local and nationally-recognized lenders here.

Make sure you take all of the factors into consideration when deciding whether it would be better for you to attempt a loan modification or a loan refinance. Doing so can give you the best chance to make your loan affordable again.


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