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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