Refinancing vs. Loan Modification

In the housing boom of recent years, many borrowers received excellent interest rates that were set to adjust three or five years later. At the time, there was very little risk; home prices were going up and borrowers had excellent credit. Since the bust of the housing boom, home values have fallen and many people have a lower credit score. Here’s the problem: these low adjustable rates are adjusting causing payments to rise and borrowers are unable to afford those payments. The borrower is left with four choices:

Sell the Home
This is difficult for some in the current real estate market because many homes are worth less than what homeowners owe. In some regions of the country, even the most conservative borrowers who took out mortgages at 60% of the value of their home owe more than the home is currently worth. If you do owe less on your loan than you can sell your home for, selling your home is an option.

If a homeowner does not mind ruining their credit in order to get rid of the home, they can always “mail the keys” back to the bank. Though not quite as simple as mailing back keys, many homeowners are choosing to stop paying their mortgage, allowing the bank to foreclose on the property. This is not an attractive solution for many homeowners for obvious reasons.

By refinancing a loan that has adjusted, you may be able to lower your payments and stay in the home. However, the same issues regarding home values and amounts owed typically cause this option to fail.

Loan Modification
Most mortgage lenders have established departments to work with homeowners to modify the terms of their existing loan to allow them to afford to stay in the home. Every mortgage company has a slightly different method of managing and processing these modifications. Some mortgage companies will dramatically reduce interest rates. Others will extend amoritizations (reducing minimum payment amounts) and some will even lower the principal balance owed. These mortgage companies have many people in various stages of foreclosure, therefore dealing with them can be frustrating and intimidating. If you are well versed in real estate law and terminology, this is a fairly straightforward process. Many individuals may find this process very difficult and frustrating. For people looking for help with loan modification negotiation, apply for assistance negotiating a lower payment >