Have you ever wondered why do some homeowners refinance and others do a loan modification? There might be a lot of reasons driving their decisions. In this article, we identify some of the key differences between a loan modification and a mortgage refinance. They both can be beneficial to someone with a high mortgage payment, and so they need help with one of the two options to lower their mortgage payment. They have similarities and differences alike. Let’s check them out!
A refinance simply completing the process of acquiring a new loan for financing your current mortgage. When you do a refinance, you will have to run your credit to meet the minimum requirements to be eligible for the new mortgage loan you are requesting. You will have to provide proof of employment, meet a minimum income requirement, have a good payment history, in addition to other conditions. When you refinance, you are paying off your old loan with a new loan and starting over again. You can take out equity in the property or leave it in. You can often do a 15yr or 30yr mortgage. You might want to do a refinance with a cashout and pay off another high-interest loan such as a credit card, revolving store card, other loans, finance college, buy a new car, among other things. When doing a refinance, your credit score and payment history will be weighed heavily in the final determination to grant you credit or deny you.
Most refinance will take anywhere from about 2-4 weeks to complete, and your old mortgage lender will be paid off. Homeowners will often refinance when the interest rate is at least one percentage point lower than they are currently paying. It’s good to refinance if you intend to stay in the home for at least another 5yrs. The reason why it’s not a good idea to refinance if you don’t plan on staying in the property for at least five more years is due to the fees and closing costs associated with doing a refinance. It is like getting a new loan – in fact, that is exactly what you are doing.
A loan modification is similar to a refinance because it is actually lowering your mortgage interest rate to give you lower house payment. However, there are some key differences. A loan modification is not focused on your credit score or credit history as much, if at all. Some loan modifications don’t ever check your credit history, a small number of lenders do check, but your credit is not weighed much at all for granting you a loan modification. When you do a loan modification, you will rarely get charged anything, and if you do, they are minor changes that are rolled up in the mortgage balance, unlike a refinance. Many people that apply for a loan modification are often in deep trouble with their mortgage payments. They commonly have a poor credit history and will usually not qualify for a refinance.
Not to say a refinance is better than a loan modification, but many homeowners who do a loan modification do it as a last option. Homeowners who refinance do it because they choose, and they can try to use their good credit history to their advantage by getting a lower mortgage payment. Ironically, a refinance and a loan modification will often give you a much lower mortgage interest rate over your initial interest rate. Yet, the requirements for getting them can be so different. One of the disadvantages of a modification is not having a cash-out option whenever the homeowner does it; With a refinance, a cash-out possibility exists. Once the loan is modified, the loan will start over again, with good credit reporting showing up with the credit bureaus.
So you are having to pay the closing cost that will take a few years to recover from before you actually start seeing some actual savings. You will not need to refinance if you are not going to get a lower interest rate of at least 1 point. It would not be worth it in the short term. If you need to cash out without refinancing or selling the property, you might want to consider a Home Equity Line Of Credit(HELOC). It’s like a kind of revolving credit that your home serves as collateral for that loan. You can get access to the funds all at once or over some time. So keep in mind that it is not so much whether you did a loan modification or a refinance because the results are often very similar. The key is to get your mortgage payment lower. Get in touch with the professionals at DLC ESTATE MORTGAGES for all your mortgage needs in