How to Lower Mortgage Interest Rate Without a Refinance

If your mortgage interest rate is too high, you can reduce it by proving financial hardship.

When mortgage interest rates are low, homeowners flock to mortgage lenders and banks to refinance their mortgage loans to take advantage of these rates and the lower payments that they bring. But most traditional lenders require at least 20 percent equity to refinance, so homeowners whose residences have declined in value might not have enough equity in their properties to qualify. It is still possible for these homeowners to lower their mortgage interest rates without a refinance; they can obtain a mortgage modification from their lenders. To do this, though, they must prove that they no longer can afford their current mortgage payment.

Instructions

1. Build the evidence proving that you have suffered a financial setback that makes it impossible for you to afford your current monthly mortgage payment. Gather and make copies of your most recent federal income tax return, last two paychecks, savings and checking account statements, credit card bills and other loan statements. You'll eventually send this information to your lender to prove that your gross monthly income has gone down but your monthly debt obligations have not.

2. Compose a hardship letter that spells out the reasons why you can no longer afford your monthly mortgage payment. This might include a serious medical condition or significant reduction in working hours. In the letter, ask to have your mortgage loan's interest rate reduced to result in a smaller, more affordable monthly payment. You will send this letter after you complete Step 3.

3. Call your mortgage lender or bank at the number provided on your current mortgage loan statement. Ask to speak to a manager, and then explain to this person about the financial setback that has made your monthly mortgage payments unaffordable. Request a reduction in your interest rate. Ask your lender if it is participating in the federal government's Home Affordable Modification Program, which provides financial incentives to encourage lenders and banks to modify mortgage loans. Your lender doesn't have to participate in the program, but the modification might go more quickly if it does.

4. Send your hardship letter and copies of your financial papers to your lender. Your lender will study this evidence to determine the seriousness of your financial hardship.

5. Agree to an interest-rate reduction if your lender approves your request. Make sure, though, that the resulting mortgage payment has been lowered enough so that you can comfortably afford it each month.

References

• Los Angeles Times: Consumer Guide To Mortgage Modifications
• U.S. Department of Housing and Urban Development: Loan Modifications
• Making Home Affordable: Eligibility