Which is Better: Loan Modification or Refinance?
A loan modification is different from a refinance. Loan modifications work by changing the terms of your original loan. These changes can be temporary or permanent, depending on the type of modification.
A refinance, on the other hand, is a new loan with all new terms. It would take the place of your original mortgage.
Both loan modification and refinance could help lower your monthly mortgage payments. However, a loan modification is usually reserved for special circumstances that are making it nearly impossible to keep up with your current payment schedule.
Changing the terms of your loan can be a challenge, but luckily refinancing is a lot easier. If you think you are in danger of foreclosure, take action!
Ready to take action now? Refinance!
The process is easy, and you can start right away using our online pre-qualifying application on our homepage.
Keep reading to learn about the different types of loan modifications -- remember that while all of these options offer relief, they may not be available in your case.
However, refinancing is always available to you. Contact us to learn more.
Types of Loan Modifications
Defer Mortgage Payments
Deferring your mortgage payment means that you can skip a few payments without penalty. This option is best for short-term relief. Consider it if your financial hardships are temporary such as being in-between jobs or having unexpected medical bills to pay.
Eventually, you'll have to make up those deferred payments, usually by adding a few months to the end of your loan term. Keep in mind that adding those payments to the end of your loan also means you’ll end up paying more in interest.
This option is the most attractive, but also the most difficult modification to get. A principal reduction is when the amount you owe on your mortgage is decreased. When your loan amount goes down so is your mortgage payment.
Another loan modification option is you have your interest rate lowered. Your mortgage interest rate, sometimes called the APR, can be cut permanently or temporarily. Either way, you will find immediate relief with a mortgage rate reduction. **A refinance can do the same thing!
Longer Loan Term
Extending the length of the loan is yet another option. When adding time to the loan term, the amount owed is spread over a longer time. This means that your month-to-month mortgage payment will be less. However, in the long run, you'll end up paying more because the interest is also spread out over a longer time span.
Instead of modifying your loan, consider refinancing!
Swapping your current loan for a new one with better terms and more manageable payment plan may be better than adjusting your existing loan.
Curious to see your refinancing options? Contact us today!