Can You Refinance A Mortgage That Has Been Modified

Loan Modification Vs Refinancing

There are two ways to lower your monthly mortgage payment, loan modification and refinancing. Most property owners hope for a reduction in their mortgage payments. However, others who have no other option to avoid foreclosure must reduce their mortgage payments. Loan modification and refinance both offer financially struggling homeowners to lower their mortgage payments. Lets discuss the similarities and differences between loan modification and refinance.

Missed Payments And Credit Hits

Loan modifications are often arduous and drawn out. The process entails proof of hardship, and for many lenders, that means missed payments. If you missed payments in the months leading up to your modification, your credit took a hit. Your credit score dropped, likely by several hundred points, and your lender reported the modification to the credit bureaus. Credit scores take time to recover from mortgage troubles, typically about two years. A refinance requires no missed payments for at least one or two years, and a minimum credit score, typically at least in the mid- to high-600s. Sufficient time must elapse between the modification and your application to meet most of the minimum eligibility requirements for a refinance.

How Does Mortgage Modification Work

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When youre experiencing a financial hardship, it can be challenging to stay current on your mortgage. A mortgage modification, including the Flex Modification program for borrowers with a conventional loan owned by Fannie Mae or Freddie Mac, adjusts the original terms of your loan to help make your mortgage payments more affordable.

This is especially true for the millions of homeowners who are affected by the coronavirus pandemic and struggling to meet their monthly mortgage obligations. Some form of mortgage relief, such as a mortgage modification program, could provide much-needed assistance during this critical time.

• 6 tips to avoid loan modification scams

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What Is Title Insurance

There are two parts to title insurance.

• Lenders title policy
• Owners title policy

In a closing transaction, the title policy will protect the lender and consumer, in the event that something interferes with the title, such as unpaid contractors or stray judgments.

You need title insurance when you are buying a house, but not during your refinance.

Choosing The Right Lender

Once you have decided to refinance your second mortgage, you need to find a lender who can offer you the best terms. Like in any other loan, the key figures to look at are the interest rate and the processing and closing fees.

However, you should remember that not all lenders specialize in second mortgage refinancing. Many lenders might not even be able to give you the answer to the simple question that can you refinance second mortgages or not, so it becomes very important to look for a lender who specializes in these loans.

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When Refinancing Makes Sense

If youre one of the fortunate homeowners who maintained your income and your credit score through the pandemic, refinancing might make sense.

The classic reason to refi is to lower your mortgage rate. In the months after the pandemic began, mortgage rates plunged to all-time lows and refinance volumes soared. Qualified borrowers could land 30-year mortgages at less than 3 percent. Since hitting a record low in January, mortgage rates have edged up.

However, rates still remain low by historical levels. If you havent refinanced in the past year or two, it makes sense to look at your current loan.

Here are some reasons it can make sense to refinance:

You still havent locked in a historically low rate. Rates remain far below their pre-pandemic levels. Say you took a 30-year loan in late 2018 at 4.75 percent . Your monthly payment for principal and interest is $1,565. If you refinance at 3.25 percent, youll chop your monthly payment to $1,306, a savings of $259 a month. Your situation may not yield such dramatic savings, so be sure to calculate your break-even point the period of time youll need to make up the closing costs through lower monthly payments.

When Loan Modifications Make Sense

If you sailed through the coronavirus recession with no hits to your income, and youve been able to stay current on your mortgage payments, dont bother with a loan modification.

However, if youre among the large group of Americans who lost their jobs, and you have yet to recover, a modification could make sense. While mortgage forbearance offered generous terms to homeowners who were out of work, those forbearance periods are ending and lenders expect homeowners to resume making payments. If your finances still havent returned to pre-pandemic levels, youll want to pursue a mortgage modification.

A loan modification changes the terms of the loan so that borrowers dealing with economic hardship can afford the payments. To achieve that goal, lenders can reduce the interest rate, extend the term or change the loan type . Some possibilities:

• Longer loan term: If your monthly payment is too much for your post-pandemic budget, your lender might extend your term from 15 years to 30 years, or from 30 years to 40 years. This gives you more time to repay your loan and reduces the amount of your monthly payment.
• Lower interest rate: If interest rates are lower now than when you locked in your mortgage, you might be able to modify your loan and get a lower rate. This step lowers your monthly payment.
• A different loan type: Perhaps your original loan was an adjustable-rate mortgage. The modification could switch that loan to a fixed rate.

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Refinancing To Tap Equity Or Consolidate Debt

While the previously mentioned reasons to refinance are all financially sound, mortgage refinancing can be a slippery slope to never-ending debt.

Homeowners often access the equity in their homes to cover major expenses, such as the costs of home remodeling or a child’s college education. These homeowners may justify the refinancing by the fact that remodeling adds value to the home or that the interest rate on the mortgage loan is less than the rate on money borrowed from another source.

Another justification is that the interest on mortgages is tax-deductible. While these arguments may be true, increasing the number of years that you owe on your mortgage is rarely a smart financial decision nor is spending a dollar on interest to get a 30-cent tax deduction. Also note that since the Tax Cut and Jobs Act went into effect, the size of the loan on which you can deduct interest has dropped from $1 million to $750,000 if you bought your house after Dec. 15, 2017.

Many homeowners refinance to consolidate their debt. At face value, replacing high-interest debt with a low-interest mortgage is a good idea. Unfortunately, refinancing does not bring automatic financial prudence. Take this step only if you are convinced you can resist the temptation to spend once the refinancing relieves you from debt.

Should You Consider A Mortgage Refinance Or Loan Modification

Mortgage Loan Expert, Doug Crouse, shares when the right time to refinance your mortgage in this latest show. He’s even got his own rule of thumb.

Should you refinance your mortgage or modify your loans?

Are you one of the thousands of people trying to figure out what to do about your home loan?

The rates have been dropping in the mortgage market, so which is the best course of action? And once you decide on what you need to dohow do you proceed?

It can be a confusing topic, and most people have no idea how to make a decision. Id like to walk you through the process so that you can make the best possible long-term financial decision.

Why would someone want to do a loan modification?

What do you need to know about them?

In This Article

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Roll Late Fees Into The Principal

If you have accrued past-due charges on things like interest, late fees or escrow, some lenders will add that to your principal balance and reamortize the loan. That means the amount you owe will be spread out over time with the new balance. If you extend the length of your loan, you might end up paying less in monthly payments even though you owe more toward your principal.

What Can Go Wrong

Mortgage loan modifications are not without pitfalls. No matter how focused your attention to detail, your credit score almost certainly will take a hit with a home loan modification. Often, a homeowner wont get approved for a loan modification unless there is evidence of one or several missed payments. Those missed payments hurt your credit score. A home loan modification does the same.

Beyond the stories of lenders losing documentation or simply refusing your application despite your best efforts to comply with their every request, beware scam artists who will claim to work on your behalf.

Consult with a HUD-certified counselor if possible. Or, in more complicated financial cases, find a real estate attorney experienced in home loan modifications.

Have you done everything within reason to keep your payments current? Can you show evidence youve cut your expenses or found ways to increase income? Again, a HUD-certified counselor could be your best bet as a sounding board.

Home loan modification applications get turned down for a variety of reasons. There is an appeal process but, again, timing is everything. You can only appeal if you sent the request for mortgage assistance in 90 days before your foreclosure sale and the bank denied you for any trial or permanent loan modification programs it offers.

If you are denied a second time, you cant appeal again. If the servicer decides to offer you a loan modification, you have 14 days to accept or reject it.

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How To Refinance A Delinquent Mortgage

If youre attempting to refinance a mortgage to avoid foreclosure, its crucial to take action before the loan becomes further past due. If you havent already, communicate with your lender to discuss your failure to pay the mortgage.

Your lender will provide you with all your options. The more quickly you act, the better the chances your lender will work with you or that youll find another bank or mortgage company willing to refinance delinquent mortgages.

Heres how to refinance a delinquent mortgage.

What Is A Loan Modification On A Mortgage

A mortgage loan modification is an adjustment in your loan terms. The adjustment is a sort of misfortune alleviation. The adjustment can lessen your regularly scheduled installment to a sum you can bear. Changes may include expanding the quantity of years you need to reimburse the loan, lessening your loan fee, and additionally refraining or decreasing your chief equilibrium. In the event that you are offered a credit alteration, be certain you know how it will change your regularly scheduled installments and the aggregate sum that you will owe temporarily and in the long haul.

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How To Change Names On A Mortgage

Assuming an existing loan as opposed to getting a new one can be smart if the current terms are less favorable than at the time of the original loan. When you assume a mortgage, you take over the existing payments on a loan as opposed to starting over with a new one. However, if current rates are better, you likely want to go with a new loan because a lender won’t let you modify the loan before it is assumed.

Can You Reduce Monthly Mortgage Payments Without Refinancing

You may be able to reduce your monthly mortgage payment without a refinance if you qualify for loan modification. If you are paying private mortgage insurance , qualifying for it to be removed because of an increase in home value is another way to cut your payment. If your homeowners insurance is bundled into your monthly payment, finding a less expensive carrier could also help you save.

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Early Renewal Option: Blend

Lenders may allow you to extend the length of your mortgage before the end of your term. If you choose this option, you dont have to pay a prepayment penalty. You may have to pay administrative fees.

With this option, lenders blend your old interest rate and the new terms interest rate. Lenders call this option the blend-and-extend, or blended mortgage.

Your lender must tell you how it calculates your new interest rate. To find the renewal option that best suits your needs, consider all the costs involved.

Whats The Difference Between Loan Modification And Refinancing

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Harp After Hamp Is Possible But Is It Worth It

It’s not theoretically impossible to refinance under HARP after a HAMP modification. However, it may depend upon the terms of the modification, such as whether or not the loan modification included principal forgiveness or deferment, and other factors.

That said, you should also be aware that it is unlikely that a refinance under HARP will provide you the same payment relief as your modification did, as refinances are written at today’s current mortgage rates, which may be up to several percentage points higher than your modified loans interest rate , so this may nullify the need for a HARP refinance.

How Mortgage Loan Modification Works

With a loan modification, the total principal of your existing loan amount wont change.

Rather, your lender may agree to a lower interest rate or to lengthen the payoff terms of your home loan.

Any of these strategies could help reduce your monthly mortgage payments and the total amount of interest you pay in the long run.

Modification can also include switching from an adjustable-rate mortgage to a fixed-rate loan and rolling late fees into your principal, adds Condor.

Keep in mind, loan modification is intended to make a mortgage more affordable month-to-month. But it often involves extending the loan term or adding missed payments back into the loan which may increase the total amount of interest paid.

Refinancing into a new loan, on the other hand, often reduces the monthly payment and the total interest cost.

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Types Of Loan Modification Programs

Some lenders and servicers offer their own loan modification programs, and the changes they make to your terms may be either temporary or permanent.

If your lender or servicer doesnt have a program of its own, ask if you are eligible for any other assistance programs that can help you modify or even refinance your mortgage.

The federal government previously offered the Home Affordable Modification Program, but it expired at the end of 2016. Now, Fannie Mae and Freddie Mac have a foreclosure-prevention program, called the Flex Modification program, which went into effect Oct. 1, 2017. If your mortgage is owned or guaranteed by either Fannie or Freddie, you may be eligible for this program.

The federal Home Affordable Refinance Program, or HARP, helped underwater homeowners refinance into a more affordable mortgage. HARP has also expired. Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance replaced HARP in 2019.

» MORE:Explore Fannie Mae and Freddie Mac refinance options

A Modification Changes The Terms Of Your Loan

If you entered into a HAMP agreement, you would have had to document a hardship that prevented you from making the agreed-upon payments for your original mortgage. To modify your loan, the servicer would have changed the terms of your original loan to get your monthly mortgage payment down to not more than 31 percent of your monthly gross income.

These changes may have come in the form of:

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Finding A Different Lender

Failure to qualify with one mortgage lender does not necessarily mean that its the end of the road. As long as the home value is greater than the remaining loan balance and the mortgage is current, it may be possible to get a decent refinance rate through another broker or lender. Do not act too quickly after recovering from past problems, even if you can prove a significant income increase, because it takes time to bring a credit score back up to an acceptable level.

There are other less attractive options for financing when no lender is willing to refinance. Hard Money Lenders are always willing to take on new clients in exchange for hefty rates and fees. It might be smarter to simply stay within the modified mortgage terms until conditions for a reputable lender are sufficiently met. Schedule an appointment with the experts at The Law Offices of Georgette Miller and Associates when you are in need of personal financial advice.

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