With today’s refinance market, low mortgage rates, types of home mortgage loans, FHA loan mortgages and refinance qualifications, homeowners are overwhelmed by all the information currently at their finger tips. What steps should be taken to stay within our home? How can we acquire the lowest mortgage rate for refinancing? Are we able to refinance within an FHA mortgage loan? Are just some of the many questions circling the dinner table each night. One in particular stands out the most for many, ‘should we refi or modify our mortgage?
Well in order to answer this, homeowners must first understand the differences between the two. What is the difference between a Mortgage Refinance and a Mortgage Modification? With mortgage refi’s within Orange County, Los Angeles, and Ventura areas being the more popular route amongst homeowners, to show why, let us first define the two.
A Mortgage Refinance is defined as the act of changing out your current loan for a more favorable one.
• The new loan is able to pay off the old loan, freeing the homeowner from past mortgage requirements, interest rates, and payments, while putting in place the new loan with new requirements, interest rates, and payments. Also available within a mortgage refinance is the ability to take out an amount of funds built within the home’s equity. This is known as a “cash out” refinance and the amount taken out will be paid back through one’s monthly mortgage payments until loan amount has been paid off.
A Loan Modification is defined as the act of making a permanent change in one or more terms within your loan agreement; allows for one’s mortgage loan to be reinstated while providing the payment requirements that the homeowner is able to afford.
• The changes in the loan agreement terms serves to make affordable payments so that the homeowner will stay in good standing versus entering into a status of ‘default’ on their loan. Banks often choose to offer a loan modification in order to help assist the homeowner in their efforts to keep their home.
To understand the differences, let us now compare.
• With a refinance, homeowners replace their current loan with a newer one that consists of a lower interest rate, and/or more favorable loan terms like a fixed rate versus an adjustable rate. A refinance is a more permanent solution for homeowners whom wish to adjust their loan modifications and whom in the process, find greater rewards.
• With a loan modification, homeowners make changes to their current loan only. No new loan is received. These changes often last for a short period of time to help homeowners recover from a financial fall back while the original loan is still in place. Most homeowners turn to a loan modification only when they are not able to refinance.
Know that you can understand the difference between a mortgage refinance versus a loan modification, if able, review your options to refinance your home. You will find that within such areas, refi’s in Orange County, Los Angeles, and Venture, and beyond, choosing a low rate mortgage refinancing helps you today and into your future for years to come.
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