If you are facing financial difficulties and you have a mortgage, you are likely to be very worried. There is the looming threat of foreclosure and dept, meaning you will lose it all. Thankfully, there are options out there, including mortgage refinancing and a home loan modification. Golden State Financial Group feels that it is very important to understand the difference between the two. They have worked with thousands of people in these difficult situations and have helped them to find the best possible option.
Golden State Financial Group Looks at Mortgage Refinancing and Home Loan Modification
Both the modification and refinancing are ways of changing the way you pay your mortgage and altering your terms and conditions. They are not, however, the same thing. Indeed, they are used in very different situations. Refinancing is probably better understood by people. It means that a new mortgage is taken out that has better terms, and that this mortgage pays off the first one. This is most popular in homes that have some equity, allowing people to lower their interest rate. A loan modification, by contrast, isn’t a new loan. It simply changes the terms and conditions of the existing loan. Some of the ways in which it does that include:
Lowering the interest rate.
Lengthening the loan term.
Writing off some of the principal.
Through these methods, the loan is changed in such a way that the monthly repayments become more affordable. This is beneficial to you as a borrower because you can make the repayments, and it is beneficial to the lender because it means they don’t have to make foreclosure proceedings.
Which Option Is Right?
There are a number of factors to take into consideration when deciding whether to apply for a refinancing or a modification. Golden State Financial Group can help to look at an individual’s personal situation and help them make that decision. If, for instance, you have quite a lot of equity in your property, and its value hasn’t dropped by more than 10% since you originally took out your mortgage, then refinancing is usually the best option. Generally speaking, lenders will not refinance above 90% loan to value, and they prefer 80%, in fact. Unfortunately, this has made refinancing an impossible option for many Americans.
Should you be in financial hardship because of an unexpected drop in income, change in family circumstances such as death or divorce, or have unexpected medical bills, and you also meet the other necessary requirements, then a loan modification is likely to be the better option. If you apply under the federal regulations, you will have to meet a lot of specific criteria, but it will mean your monthly payments, if accepted, won’t exceed 31% of your monthly gross income. If you apply through your lender’s own in-house program, the application criteria are usually more relaxed, but the percentage may be slightly higher, sometimes up to 45%.