Loan Modification vs Mortgage Refinancing: What’s the Difference?

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Contrary to popular belief, comparing loan modifications and mortgage refinancing is like comparing apples and oranges. Although they both have the potential to be very, very good for you – many of their attributes are actually quite different.

If foreclosure feels imminent, or if you are just beginning to really struggle to make your monthly mortgage payment, it’s important to know your options. Foreclosure is absolutely not your only option.

Loan Modifications

If you have sought the help of an experienced loan modification attorney – congratulations! You’ve taken the first step toward making changes to your existing mortgage so that it once again becomes manageable. Although you can apply for a loan modification on your own, it is not advisable. Your NJ loan modification attorney will negotiate with your lender on your behalf.

Along with your attorney’s help, you’ll apply for a loan modification with your current mortgage lender or bank. Your lender will then review your application, and may negotiate with your attorney about which changes to your loan would make the most sense. Some common changes often made during loan modifications include: extending the length of the loan, lowering the principal amount due, one-time forgiveness of late fees, and possibly lowering the interest rate on the loan.

If approved, your loan modification will be awarded to you on a trial basis first. The trial period typically lasts for three to six months. Making all of your modified payments on time during your trial period is crucial, and if you succeed, the modifications will become permanent changes to your home loan.

Mortgage Refinancing

In contrast to loan modifications, refinancing your mortgage will result in a completely new loan. Your old mortgage will be null and void, and a new one will be generated in its place, with the goal of giving you a new, lower interest rate so that your monthly payments are much more manageable. Qualifying for a mortgage refinance means your credit will be checked again, as will your current income. You will essentially be applying for a loan all over again. If your credit score or job status has changed (for the worse) since you first applied for your original mortgage loan, your mortgage refinance application may be denied.

It is also important to note that you will have to pay origination fees and closing costs if your refinance goes through. You will need to have a home appraisal completed, and real estate market conditions will be rechecked to determine whether you should be awarded a lower interest rate in the current market.

As you can see, both a loan modification and a mortgage refinance have the end goal of making your monthly payments achievable so that you can stay in your home. To find out more about either process, or if your lender has already started foreclosure proceedings, send us a message today. Your first consultation is always free so that you can determine if our services are what you need.

Image credit: Frankieleon

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9 Responses to Loan Modification vs Mortgage Refinancing: What’s the Difference?

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