Loan Modification vs. Refinances
If you are a homeowner and you’re looking to lower your mortgage payment, there are a few options. Loan modification or a refinance. It all depends of your situation and what you’re in need of. There is still plenty of time to get a lower interest rate that you deserve!
What is a loan modification? ‘’A loan modification is when a lender agrees to alter the terms of a homeowner’s mortgage to help them avoid default and keep their house during times of financial hardship.’’ Meaning, if you had to take a pay cut from your current or new job and you are unable to make the current mortgage payments, your lender will see if you qualify for a payment adjustment to something that you can afford. With a loan modification it restructures your loan in the interest of making it more manageable for you. You’ll receive a lower interest rate but and sometimes an extended loan. A loan modification can also be geared for those with not so great credit. Loan modifications tend to have 30 and 40-year loans.
What is a refinance? “A refinance is when a borrower wants to replace the existing loan with a new loan that pays off the debt of the first loan.” This is another way to lower your interest rate. However, when you refinance the lender also takes your credit score into account. Whereas with a loan modification they do not. Most borrowers choose to shorten their payment term when they refinance. With refinances you have a 15 or 30-year loan.
The difference between the two is simply your circumstance. If you’ve lost your job, or taken a pay cut a loan modification who probably be best but just know your loan term may be longer. If you are looking to decrease your finances and get a better rate, then a refinance would be better for you. Just keep in mind the better your credit score is the better interest rate you will receive.