As a homeowner having trouble repaying your mortgage you may have considered a loan modification refinance to try and reduce your loan repayment amounts. Did you know that a loan modification and loan refinance are actually two different solutions? We will look at each one to help you determine which is right for you.
When deciding which option to go for you need to consider the following points and how they relate to your current financial situation:
Current value of your home
Balance of your home loan
Your credit score.
In current times with depressed home values many homeowners find themselves with much less equity than required to qualify for a refinance. Even though the value of your home may be less it can be an incentive for the lender as they won’t lose as much money by modifying the terms of your loan. Since banks currently have an oversupply of foreclosed properties they will be motivated to help you avoid foreclosure.
If your job has been impacted by the economy causing you to miss payments this will have affected your credit score negatively and hinder your chances of obtaining a refinance. With a weaker credit score you would still be eligible for a mortgage modification as you are just changing the terms of your existing loan to bring them in line with your changed financial situation.
Because every homeowners situation is different it is essential that you submit a well prepared application to your lender. You should take the time to learn all your options to determine which is better for you. There are also other solutions besides loan modification or refinance to avoid foreclosure. If you are struggling to be approved for a refinance, a having your loan modified may be your answer. It will allow you to lower your interest rate by increasing the length of your term. This will allow you to make the repayments under your new financial circumstances.
By John Hester