Mortgage Modification Vs. Refinance
A high mortgage payment and interest rate can wreak havoc on your finances. Fortunately, there are ways for homeowners to reduce their mortgage payments and rates. Depending on your situation, you can either opt for a mortgage modification or refinance.
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Definition
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While a modification and refinance can both result in better loan terms and a lower payment, a mortgage refinance creates a new home loan, whereas a loan modification simply renegotiates or modifies the current loan terms.
Credit History
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Homeowners need a good credit history to obtain a refinance, and they will have to re-qualify for a home loan. Loan modifications benefit borrowers who can't negotiate a refinance due to a bad credit history.
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Loan Fees
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When applying for a mortgage refinance, applicants are subject to fees such as inspection, appraisal and closing costs. With a modification, lenders will negotiate better mortgage terms minus fees.
Warning
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Although a modification is less expensive than a refinance, not everyone qualifies for this lender provision. Borrowers have to demonstrate financial problems to qualify for a loan modification.
Time Frame
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Homeowners can refinance their mortgage loan and close on the loan within 30 to 60 days, whereas it can take up to six months to complete a mortgage modification.
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