Is it a good idea to modify your loan rather than refinance ?

With all the talk lately about Loan Mods or Modifications..I thought I would discuss this topic today.

Is it a good idea to modify your loan rather than refinance to cut down the closing cost? Especially if your are trying to reduce interest and lesson years to pay….

Loan modifications are, and were never meant to be an alternative solution to refinancing. Loan modifications are available to those who have a Proof of hardship and cannot refinance, so as a last ditch effort to save the home from foreclosure (because banks do not want to foreclose) a bank agrees to a modification. If you qualify for a refinance, you will 99.999% of the time be denied..

So beware of the scams that are popping up everywhere…If you have made all your payments on time nobody can work a deal with your current lender…NOBODY!!!!

Why? Because your debt to income ratio, loan to value, credit, and assets, support a new loan – you have no hardship, therefore no modification – so your only option is to refinance.

If a particular LOAN MODIFICATION COMPANY  suggested this as an alternative solution – they are “selling” you. Next time you talk I would request all their licensing information and research it with your local Department of Real Estate, and Better Business Bureaus…

As a licensed broker myself I will say a considerable sum of loan modification companies are operating outside the scope of the law, and many consumer advocate groups are beginning to target modification companies as the next breed of predator in the real estate market.

If you can refinance – that is your only option – refinance. If you are denied your refinance, that is when you can start considering a modification.

Moreover, successful modifications are usually short term solutions, and do not support long term plans, because the modification usually ends with you securing an ARM, fixed for a slightly longer period than you may have now, with a lower interest rate. Because most are adjustable rate mortgages, and with inflation looming in the near future getting into a low adjustable rate mortgage with high cap rates and frequent adjustments, is like an ostrich sticking its head in a hole in an attempt to hide from hungry circling hienas. You may feel a little better about your situation, but the danger is still out there, and you must not look at a modification as a permanent solution.

There is no question – if you have the option, despite higher closing costs – refinance. You will be happier in the long run.  

I would be glad to answer specific questions. Just email me or post a question here. I will get back to you with an answer within 24 hours.

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Thanks for stopping by…