There are a lot of different mortgage terms being thrown around these days, with loan modification and refinancing becoming two of the most popular.
If you are looking for a way to slash your mortgage payments, you may be considering one of these two options. But wait! It’s important to know the differences between them to avoid getting into another mortgage mess.
Loan Modification vs. Refinancing
It can be easy to confuse a loan modification and a refinance, especially since both are designed to lower your current mortgage payment, but there are some important differences to consider before applying for either:
1. Refinancing a mortgage requires you to reapply for a new loan – a modification doesn’t. Modifying your current mortgage is simply a way to change your current mortgage contract by asking for either an extension of the loan terms; an interest rate reduction; or principle forgiveness, to help you reach a payment amount you can live with. Since most people needing to lower their payments these days do not qualify for a new loan, refinancing may not be an option.
2. Since you already hold a mortgage, loan modification rules are a lot more lax than refinancing a loan, making it much easier to negotiate new loan terms.
3. There is a lot less paperwork involved in a loan modification than a refinancing. Remember all of that paperwork you had to fill out when you applied for your mortgage? You have to resubmit everything! If you refinance you will Depending on the lender, a loan modification may not even ask you for your pay stubs!
4. Refinancing a mortgage these days is tough! It may sound crazy to think it’s easier to get a loan modified than to get a whole new mortgage, but it is.
5. Refinancing your current mortgage will require equity in your house; a stable income; and a very good (if
not great) credit rating.
6. If you are one of the millions of homeowners right now looking for ways to lower their monthly mortgage payment due to financial stress, a loan modification may be the better option.
