Mortgage Refinancing vs Loan Contract Modification

If you are considering mortgage refinancing, you may want to also look into a loan modification. There are pros and cons to both, so it is best to look at each situation individually to determine what will work for you.

Mortgage Refinancing

A mortgage refinance will change the terms of the loan, either in years, making a fifteen year loan into a thirty year loan, or by changing the interest rate. A refinance costs money because of closing costs. These fees are either paid in cash at closing, or rolled into the loan. Not everyone can refinance. If you have a house that appraises well below what you owe you will not be able to get a loan.

Loan Modification

A loan modification is an alternative to refinancing. This is where the bank agrees to change the loan terms without a refinance. They simply modify the agreement. This is good for those who lost their job and can't get a traditional refinance. Also if you home has decreased in value significantly than you will need a loan modification. The downside is the possibility that you can be taxed on your savings since it is considered income.

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