Mortgage Refinancing vs Mortgage Loan Modification Programs

Should I refinance my current mortgage or use a loan modification program?

Cutting Your Payments: Mortgage Refinancing and Loan Modification

If you need to cut your mortgage payments, refinancing your existing mortgage with a new mortgage is the traditional way to get a new loan with a lower mortgage rate and payment. With the federal government's new Making Home Affordable program, home owners should look at both refinancing and new mortgage loan modification options.

Do you qualify for a standard mortgage refinancing?

The first question home owners need to answer is whether or not they will qualify for a standard mortgage refinance or not. Underwriting requirements have tightened in the last two years and lenders are requiring substantially more equity in your home in order to qualify for a refinance. At the same time, home prices have been declining in almost every area in the country. As a result, even the most qualified borrowers may find that they may not qualify for refinancing solely due to insufficient equity in their home.

For borrowers with jumbo loan sizes that are larger than the new expanded Fannie Mae loan limits or Freddie Mac loan limits, refinance options are extremely limited unless you have a substantial amount of equity in your home. Get jumbo refinance details.

For borrowers with loan amounts within standard Fannie Mae or Freddie Mac loan limits, it usually makes sense to refinance if you can using these programs because you can refinance into the lowest mortgage rates we have seen in years. If you have at least 20% equity in your home, you will not need mortgage insurance. Right now, monthly mortgage insurance premiums for private mortgage insurance are extremely high, so it pays to avoid it if you can.

Mortgage Refinancing Options

If you have less than 20% equity in your home and you are within Fannie Mae and Freddie Mac loan limits, you have two refinance options. The first option is to look at refinancing into the FHA refinance program, which allows rate and term refinances up to 95% of the value of your home (i.e. you only need 5% equity). Under the FHA program, monthly mortgage insurance premiums are less than half of what private mortgage insurance companies charge under a Fannie Mae or Freddie Mac program.

The other alternative refinance option with less than 20% equity would be to utilize one of the new 105% or 125% refinance program. Under these programs, borrowers who otherwise qualify to refinance can get a new loan without mortgage insurance (if they did not have mortgage insurance before) even though the value of their home may be 105% or 125% of their loan balance. This program has many restrictions and requirements, but is a great option if you fit into the program.

Qualifying for a loan modification program

If you cannot refinance because you either do not qualify or do not have enough equity, then the next step would be to look at loan modification options. The key issue for determining whether or not you qualify for a loan modification is to find out whether or not you have a true hardship. A hardship can be a reduction in income, which is the most common hardship for home owners in the current recessionary economy. Once a hardship has been identified, you can submit a request to your lender or work with a loan modification professional. Usually, a loan successful loan modification will result in a payment that will work for your budget and will be a permanent change to your monthly payment.

To learn whether you qualify for a refinance or a loan modification and find out which is the better option for your current situation, complete a free rate quote request

To see the current mortgage rates, visit our Current Mortgage Rates page.

If you have any questions that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.

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