Best Breckenridge Realtor Advice: Loan Modifications

During the recession, many homeowners who couldn’t afford their mortgages any longer turned to loan modifications. This financial tool helped keep them afloat. Today, loan modifications can still be a viable option, even if you aren’t having trouble paying off your mortgage. 

As a Breckenridge Realtor, I think it’s important to explore this potential money-saving route. That’s why I’m offering some key advice on how you can best take advantage of loan modifications for the mortgage on your home.

Refinancing Vs. Loan Modifications

Many of my clients have expressed confusion about the differences between refinancing and loan modifications, so let’s start with the basics:

When you refinance your home, you’re basically replacing the old mortgage with a new one. Homeowners usually find that they can opt into a lower interest rate or decrease their monthly payment. You can complete this process with your current lender or choose an entirely new one.

With a loan modification, you aren’t making any substitutions in your loan. Instead, you’re simply revising your current mortgage. It’s an effective way to obtain a lower interest rate by paying one flat fee.

I should also point out that whether you refinance or modify your loan, there are still factors that the lender needs to consider. Your credit, the equity in your home and the loan type are all examined by the lending institution before determining if you qualify for either approach.

Too Good to be True?

You may wonder why a bank would be so willing to make such major revisions to your mortgage. Remember that by changing your loan in this way, the lender is actually losing thousands of dollars in interest.

The answer is simpler than you might think. By offering this service, the bank is earning your loyalty. A loan modification eliminates the risk of losing clients to other lenders. In addition, it’s seen as the most economical solution for a rate/payment change. Essentially, this means a loan modification doesn’t cost as much for the bank as other types of mortgage changes might.

Keep in mind, though, that if you do choose a loan modification, the charges can range between $1,200 and $2,500. Again, it’s a one-time fee, but you still need to have this money available in order to modify your loan.

Despite the many great reasons to take the loan modification route, there is one thing this process is not designed to cover. If you are getting married or divorced and you want to add or remove an individual from your mortgage, you will need to refinance. A loan modification cannot alter the names that are associated with a particular mortgage.

Be Informed

With all of the convenience that a loan modification offers, it’s crucial that you don’t make this decision in a vacuum. There are pros and cons for both the loan modification and refinancing, depending on your needs. This is why you should be sure to check with your lender and explore all of your options before taking a certain path.

It’s quite possible that the federal government’s Home Affordable Refinance Program (HARP) or the Home Affordable Modification Program (HAMP) could be more viable in your circumstance. These options are not as strict when it comes to income requirements.

If you’re ineligible for either program and a loan modification makes the most sense, contact your lender. You’ll need to have a candid conversation and find out if this choice is truly right for you. See if and how your lending institution can reduce your rates to make payments more comfortable. This is the best way to discover the modification and refinancing options that are available.

Want More Info?

As you can tell, choosing between a loan modification and refinancing can take time and research. I hope this blog gives you the information you need to get started.

On a different note, if you’re ready to buy or sell a home in Breckenridge or throughout Summit County, you can start your research by looking through the updated listings on my website at any time. When you’re ready to explore your options or prepare for showings, contact me via email ([email protected]) or on my office line. I look forward to working with you!