How To Refinance to Avoid Foreclosure
Most mortgage companies do not give home loans to people who cannot make the monthly payments. However, adjustable rate mortgages (that result in interest rate spikes and higher payments after a set period of time), job loss, and other factors can cause homeowners to fall behind on mortgage payments. Refinancing can be one way to lower the monthly payments of a mortgage and avoid foreclosure.
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Instructions
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Extend the length of your mortgage. If you currently have a 15-year mortgage, you can refinance with a 30-year mortgage. It will take much longer to pay the loan, but the monthly payments will be much lower. For example, a 15-year, $100,000 mortgage may have monthly payments of $750, while a 30-year, $100,000 mortgage may have payments of $530.
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Refinance your mortgage at a lower rate. Rates fluctuate over time, and there may be banks offering mortgages at lower rates than you currently pay. There are a number of sources to check interest rates, including the business section of your local newspaper, which often lists standard mortgage rates available in your area. You can then contact the bank advertising that rate and ask to refinance.
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Avoid adjustable-rate mortgages (ARM) when buying a home or refinancing. These ARM loans automatically refinance. They are attractive because the initial rate is very low, but if interest rates rise, your monthly payments will rise with them. This may lead to your monthly payments being larger in the future. The whole point of refinancing is to avoid such payments.
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Only deal with reputable mortgage companies. Find recommended companies and make sure that they are clear about the options and that they are not pressuring you into an adjustable rate mortgage and that mortgages include escrow accounts that are used to pay property taxes and/or homeowners insurance.
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Ask for a rate reduction from your current lender. If your prospects for refinancing are limited due to bad credit and default seems likely, banks might be willing to work with you to lower your payments, especially if the alternative is a foreclosure, which will most likely end in the bank losing money as well.
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Tips & Warnings
Most banks want to avoid foreclosures. They are willing to work with homeowners to help them sell their home or refinance. Don't be afraid to contact your lender before beginning a search for other companies.
