Life happens to everyone and the different situations that can occur often present needs or opportunities. When circumstances arise that may require adjustments to our finances, you have choices with your mortgage loan. Two options, in particular, allow you to make some changes to your loan. These are refinancing and loan modification. Let’s explore a bit more about each.

What is Refinancing? 

Refinancing is an option to obtain a brand-new mortgage loan that pays off your existing mortgage loan. You still just have a single mortgage loan on your home that you pay each month. Refinancing allows you to make changes to your new loan that can bring significant benefits. These include:

• Shorten Your Loan Term – Refinancing can save you money on interest charges by obtaining a shorter loan.
• Lower Your Interest Rate – Refinancing can also save you money by allowing you to choose and lock in a lower interest rate.
• Get a Different Type of Loan – A different type of mortgage loan could be more affordable or benefit you in other ways.
• Cash Out Your Home’s Equity – You can refinance your home and borrow more than you owe to keep the difference as cash in your pocket.

A refinancing expert from Better Rate Mortgage can explain more about the different types of loans and how each one can pose significant benefits in your unique situation. Contact us now and speak to a mortgage refinancing specialist.

What is a Loan Modification? 

A loan modification is different from refinancing primarily because you are not obtaining a new loan. You are seeking to make changes to your existing mortgage loan. This is done through your existing mortgage lender, and most have certain requirements and guidelines to follow when applying for a loan modification. Some of the changes you can request include:

• Term changes – extended terms can make for smaller payments.
• Interest rate reduction – smaller interest rates can also reduce your payments.
• Structure changes – changing from an adjustable rate to a fixed rate can give you fixed monthly payments that are easier to handle.
• Principal forbearance – this request sets aside some of the principal to allow you to reduce your monthly payments as part of an effort to help you keep your loan when you’re in trouble. This is usually only allowed when foreclosure is the next step.

It is important to remember that lenders have no obligation to grant a loan modification. Most require that you show evidence of hardship and that a loan modification is a good-faith indicator that you are trying to meet your debt obligation.

A loan modification will also likely have a negative impact on your credit score.

When Would I Choose a Loan Modification Over Refinancing? 

With all the obvious negatives involved, when or why would I choose a loan modification over refinancing? There can be numerous reasons, and every mortgage and life situation is unique. Common reasons to choose a loan modification are below.

An Underwater Mortgage 

When your mortgage loan is “underwater,” that means you owe more money to your lender than your home or property is worth. Missing payments can cause this as well as falling property values in your area or neighborhood. In this case, refinancing is impossible, as no lender will issue a refinance loan for more than your home is worth.

A Principal Reduction 

When you need to request a principal reduction as an effort to lower your payments and forestall a foreclosure, the only option is a loan modification. You cannot reduce your mortgage principal with a refinance; plus, a mortgage loan that is near default would not allow you to obtain a refinancing loan.

Missing Mortgage Payments 

No lender will agree to refinancing unless you are current on your existing mortgage payments. If you have missed a few payments and are trying to work with your lender to keep the home, requesting a principal reduction or other modifications to the loan are your best options.

Better Rate Mortgage Can Help! 

Our loan experts at Better Rate Mortgage can help with advice and recommendations when life circumstances present either obstacles or opportunities. Contact us today!