What’s the difference between doing a mortgage loan modification and a refinance?

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Do they lower the rates by the same amount and charge the same fees?

  1. Reply
    Paul in San Diego
    April 30, 2011 at 12:49 am

    A loan modification changes the terms of an existing loan. A refinance is an all new loan that pays off the current one. Refinancing also requires similar conditions as a new loan, such as having enough equity in the property to be able to borrow enough against it to pay off the existing loan.

    An example I’ve seen of a loan modification is that the principal (amount owed) stays the same, but the loan is converted to a 40 year loan, the interest rate is lowered, and the owner has the option to miss a couple payments (these missed payments will then be rolled into the principal). There’s also usually a minimum time that the loan must be in place (no refinancing unless the property is sold).

    This gives the owner a couple months to catch up with their finances and their monthly payments go down. But, because the principal is paid down at a slower rate (40 years to payoff instead of 30), the bank actually makes more money in the long run. But, the owner gets immediate financial relief.

  2. Reply
    Ryan M
    April 30, 2011 at 12:56 am

    refinance is where you apply for a new mortgage to take over the remaining balance of your original mortgage. A modification is where the terms of your original mortgage are modified. How much lower the rates go depends on how low you are OFFERED by the banks. The fees for a refi are generally higher because you have to pay closing costs all over again.

  3. Reply
    April 30, 2011 at 1:47 am

    No they don’t lower the rates by the same amount and the fees are different. The difference between the two is your current financial situation and how much you pay. In a refinance, if you are able to do it, is that you have equity in your property, your credit situation is good, you have good cash reserves, your current on your mortgage payments and your debt-to-income ratio is good – in other words you can qualify and afford a loan from a lender. You’ll also have to pay to refinance but usually the cost is rolled into your loan.

    Now, in a loan modification, you typically are in or are pending a financial hardship and are having trouble paying or can’t afford the current mortgage payments and need lender assistance. In this instance, you won’t qualify for a standard refinance because you are upside down (you owe more on the property than what it’s worth), you have late mortgage payments (which usually disqualifies you from refinancing), loss of job, reduced income, or any other financial hardship, which in many cases again disqualifies you for a standard refinance.

    You can try to modify your loan on your own but be prepared because you’ll require patience, persistence and the ability to follow up periodically and deal with the lender’s giving you the run around. Or you can hire a loan modification company or even an attorney to do all of this for you. The caveat to this is that you’ll need to be careful in who you hire because there are many unethical people out there not to mention the number of foreclosure and loan modification scams out there. You might even try calling HUD at (800) 569-4287 for free assistance and advice but don’t hold your breath, in my experience, they are only about 20 – 25% successful in modifying ones loan…..but hey, “it’s free”!!! (I’m being sarcastic here)…..anyway I hope this answers your question, long-winded as it may be.

  4. Reply
    Frank Thosmas
    April 30, 2011 at 2:42 am

    Since I am only an expert at marketing foreclosures and short sales and not knowledgeable enough on tax questions and the new laws concerning lending practices I would suggest you look for an Expert under lending or tax law. There is a collection of highly qualified people that can help you.

    You will also want to research the difference a loan modification verses a foreclosure or a short sale may have on your credit rating.

    I would think it is to your advantage to pay as much as you can on your 1st and 2nd mortgage to protect your credit rating. I would never suggest a person stop payment to see what happens.

    It is best to consult an attorney in these matters. They will have the ability to review the documents and give you the best suggestions based on all of the facts.

    A local real estate agent will be able to give you information on the units sold in the area and the actual selling price. This will help you determine if it is possible to sell the property.
    You may want to check this website about all about LOAN. They have provide an article and a latest news about Loan such as home equity

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    Hope that helps, post back if need be- regards

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