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The information on this site does not modify any insurance policy terms in any way. The coronavirus contagion roiled the U. In the first phase of the pandemic, mortgage rates plunged to record lows, spurring a refinancing boom for homeowners who were in good financial shape.
The next stage of the post-pandemic mortgage market is on the horizon. More than a million homeowners could be in a position to ask their lenders for loan modifications. The bad news? Negotiating a loan modification can be frustrating. Requirements vary by type of loan, and lenders will inundate you with paperwork and unfamiliar jargon.
A loan modification and a mortgage refinance both aim for the same goal — to save you money by lowering your monthly payments. However, when it comes to which option you should choose, keep in mind that these two tactics are quite different. A modification, on the other hand, is something borrowers are forced to do. Without a loan mod, default and foreclosure loom in the not-too-distant future.
While mortgage forbearance offered generous terms to homeowners who were out of work, those forbearance periods are ending — and lenders expect homeowners to resume making payments. A loan modification changes the terms of the loan so that borrowers dealing with economic hardship can afford the payments.
To achieve that goal, lenders can reduce the interest rate, extend the term or change the loan type or do a combination of all three. Some possibilities:. This tactic is designed to keep borrowers out of foreclosure. One significant difference between a loan modification and a refinance loan is that a modification adjusts your current loan. Refinancing, on the other hand, replaces your existing loan with a new one. Additionally, loan modifications come with modest charges, typically a small administration fee.
A refi is a new loan, so it comes with hefty closing costs. Usually, loan modifications provide immediate mortgage relief, whereas refinancing can take 30 days or more. One downside: A loan modification can show up on your credit report as a negative item. A homebuyer may agree to the terms of a mortgage at the time of purchase, but life circumstances change in year loan period. The good news is that homeowners may be able to lower their mortgage payments through loan refinancing or mortgage modification, but they must consider each one carefully in order to select the best option.
If you cannot make your monthly payments or you owe more on the home than it is worth, you may qualify for loan modification. This option allows you to keep your existing mortgage with the same lender, but adjust the terms of the loan. Both loan modifications and refinancing a mortgage are ways of reducing mortgage payments to make them more affordable. But with one key difference.
In a loan medication, the terms of the existing mortgage are altered to make the mortgage more affordable. In a refinance, an entirely new mortgage with a lower interest rate is issued to replace the current one.
Both approaches have their advantages. Refinancing a mortgage is seen as the more secure, permanent solution since you can lock in the new rate for the life of the loan. Loan modifications may offer only temporary relief - modified mortgages often revert to their original terms after a certain period of time.
But a refinance requires good credit and loan modifications are often easier to obtain, particularly for persons in financial difficulty. The early results from the Making Home Affordable program seem to bear this out. Administration officials recently indicated that , trial loan modifications have been approved under the program to date, compared to 80, refinances.
To qualify for an MHA refinance, homeowners must have a mortgage that is owned or guaranteed by government-backed lenders Fannie Mae or Freddie Mac, which is the case for most U. They also must be current on their mortgage payments and have a mortgage balance no higher than percent of the current market value of their home.
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