adjustable interest rates
Why Refinance When You Can Modify?
May 20, 2009 by Webmaster · Leave a Comment
If ever you’re in a situation where you have to choose between refinancing your existing loan and modifying it, the decision would take course upon getting the feel of the current trend that’s going on. You need to know about the facts in a way that is more understandable.
At this point it would be much easier if we compare and contrast:
What is Refinancing?
Refinancing is the refunding or restructuring of debt with new debt, equity, or a combination of both.
Lenders often require an upfront payment of a certain percentage of the total loan amount as part of the process of refinancing debt. Refinancing is frequently very difficult because of a negative equity or upside down situation.
What is Loan Modification?
A Loan Modification as defined in the HUD website is a permanent change in one or more of the terms of a mortgagor’s loan, allows the loan to be reinstated, and results in a payment the mortgagor can afford.
It is a process whereby a homeowner’s mortgage is modified and both lender and homeowner are bound by the new terms. The most common modifications are lowering the interest rate, reducing the principal balance, ‘fixing’ adjustable interest rates, increasing the loan term, forgiveness of payment defaults & fees, or any combination of these.
The thing is that in refinancing, the value of the property depreciates and with it is the case that the loan is to be restructured with new debt thus, resulting to a negative equity. An upfront payment would also be required by lenders. In loan modification, the existing loan would only be reinstated so there would be no risk of having to put the property on a negative equity and upside down situation.
It would therefore be safe to say that opting for a loan modification instead of refinancing would indeed be a wise choice among those who are currently behind on their mortgage payment and is in trouble of losing their house to foreclosure.
Allow us to help you decide on which action to take. It would be very beneficial on your part if you would look further into the details of the process and we can help you on that. Contact us at American Legal Network Online, we would be more than glad to answer any inquiries that you may have.
