Over time, borrowers will have to consider loan options because mortgage rates might become a bit too high for them to pay. The good thing is that most loan companies offer options to help their customers. Two of the most popular options to choose from are loan modification and refinancing. To pick the best option for your current financial situation, it would be best to know how these two are different from one another. Better yet, get to know what they are and how they can help you with your current situation.
Loan modification
As its name denotes, a loan modification is simply an adjustment to the mortgage term of an existing loan for a short period of time. This means that the original or principal loan is still there. The only purpose of this modification on the loan terms is to help you or a borrower get to his or her feet financially.
Loan modification is usually turned to by borrowers only when they can't afford to refinance, which is more permanent and beneficial option for a continuously getting high mortgage rate. Another difference of a modified loan to a refinanced loan is that a modified one is done with the original lender, while refinancing can be done with other lenders which are hopefully offering lesser interest and mortgage rates.
Refinancing
The more preferred solution to rocket-high mortgage rates is refinancing. Basically, it is subtracting the amount you have paid for your mortgage and treating the remaining amount as a new loan. This will have a shorter loan term and fixed rate that will surely be easy for you to pay. Usually, loan officers will look into your financial standing at the time you are seeking for a refinancing and make sure that the new deal is going to be easy and right for you.
Not everyone can refinance though. One of the most common disqualifying criteria in refinancing is a good credit record. All late mortgage payments that are within 12 to 24 month period are taken into consider, which usually blemishes the reputation of a borrower thereby preventing them to get a new mortgage with lower terms. When this happens, the loan officer offers the other option to help his or her client get back on her feet financially and avoid foreclosure.
If able to refinance, a borrower can look for a new lender-a loan company that offers the lowers mortgage rate.
sure that you choose your best option by checking your credit history. Doing that can save you time and effort in looking around for a refinancing company if all you can afford is a loan modification.
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Thanks for sharing this information. I really want to know because I was new on this kind of situation. I think loan modification was nice to know for those who wants to extend their loan.
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