What’s the Difference Between Home Loan Modification and Mortgage Refinancing?

When you’re in financial distress and you own a home, it can be a scary time. Will you lose it all? Will your home get repossessed by the bank? At a time like this, you may sit down to review your options but get bogged down in the choices you have. How is home loan modification different than mortgage refinancing? Which is right for you?

First off, relax. There are lots of qualified financial counselors, information from your bank, and free online resources like this website to help you get informed. Nobody expects you to know everything right away, and it’s not really as complicated as you might think.

Home Loan Modification vs. Mortgage Refinancing, Are They The Same Thing?

While they are not the same thing, modification and refinancing are both methods for reshuffling your mortgage payments and handling them in a new way. Homeowners turn to each of them, but usually in different times and under different circumstances.

Most homeowners are more familiar with loan refinancing. In a refinance, you take out a new mortgage loan (with more favorable terms) and use it to pay off your old one. People generally refinance when they’ve built up some equity in their homes and they want to take advantage of better terms, like a lower interest rate.

When you get a modification, you’re not taking out a new loan. A modification adjusts the terms of your original mortgage in a variety of ways. The most common loan mods include:

1. extending the loan term

2. decreasing the interest rate

3. forgiving principal (in rare cases)

The goal is to end up with a lower monthly payment that you can afford. Your bank sees regular monthly payments coming in again, and you get to keep your house.

Is Refinancing or Modification Right for You?

A number of factors determine whether you should refinance or apply for a modification, and your professional financial counselor is best equipped to help you decide which is right for you.

If you have substantial equity in your home and it hasn’t depreciated more than 10% since you first bought it, you may be a good candidate for refinancing. Lenders usually require an upfront payment of “points,” where each point equals 1% of the loan and the more points, the lower the new interest rate. 20% equity is usually a good number for refinancing.

Unfortunately, many lenders won’t let you refinance if your home isn’t worth at least 90% of your current loan’s vale. Plummeting house prices have caused many people to go underwater on their mortgages, making refinancing unrealistic for many homeowners.

If you’ve had some catastrophic event in your family (such as an unemployment, death, divorce, or medical disaster) that has made it impossible to meet your monthly mortgage payment, you might be a good candidate for loan modification. If your monthly payment (including principal, interest, taxes, and insurance) totals more than 35% to 45% of your gross monthly income, you could also be a good candidate for loan modification. 

Choosing a Mortgage Lender – Pitfalls To Avoid In Picking a Home Loan Provider

Don’t be deceived; there are many outfits out there pretending to be some mortgage lenders but you can only burn your fingers if you deal with them! Oh, did you ask ‘how then can one know the good ones?’ Good question! Yes, in a moment you will get to know how to recognize and choose a good mortgage lender. Just keep reading on.

It is written, “By their fruits, you will know them.” Yes I am going to show you some of the ‘fruits’ to look out for whenever you need the services of a mortgage lender so you can make an informed choice from among the many so-called mortgage lenders swarming you to get your attention. First, let me say that they all have good and inviting ads. This, in itself, is a major reason you must look beyond their ads.

This brings us back to your question; “how then can one know the good mortgage lender or home loan provider?” If you measure any prospective mortgage lenders by the yardstick of the following tips, you should be in a position to determine fairly well whether or not such a prospective lender is genuine or fake. Now, the tips:

• Customer Service: Check the services of the home loan provider. Are their services customer-friendly? If not, I strongly advise that you walk out from here and that you do it as quickly as you can before it becomes too late to do so. This is very important. The application process, negotiations on loan amount, interest rates, customization of loan products to suit your needs etc form part of the loan process. If a housing loan provider is willing to customize its products to suit your needs that mortgage lender is more likely to be reliable.

• Clarity of the Loan Terms: Check to see if all the loan terms are clear and unambiguous. Once there are any terms that are ambiguous and cannot be explained to your satisfaction, kindly make sure that your heels are touching the back of your head as you run with all your strength. You get it? That is a sure sign of a bad home loan provider. A good and genuine mortgage lender will normally have clear and unambiguous loan terms.

• Experience of the Mortgage Lender: It is not difficult to understand that if a lender has repeatedly and successfully done it before, it is more likely to do it again and, hence, more likely to be reliable. Yes, some new and smaller mortgage lenders can be quite reliable of course. Nevertheless, experience cannot be wished away. Please do run a check with Better Business Bureau for the credentials of the home loan provider. You may also know people who may have obtained a housing loan in the past; these can be a good source of information in this respect.

• The Coverage Size: It is important for you to know that some mortgage lenders focus on mortgages pertaining to only a geographical area or can fund you only up to a certain amount. Many of such lenders could actually be genuine and good, just that they are not fit for your purpose. It is, therefore, important that before you approach any home loan provider, you should endeavor to get information about its scope of operations. I would prefer a lender with wide coverage.

With these tips at your finger tips, you will always be in control any time you may need the services of a mortgage lender.

Unsecured Loans: Move On In Life

Need urgent cash for some or other demand of life? Life is a box of chocolates and often you might end up getting a flavour you may not like! Having responsibilities also means not being able to fulfill them at times. But worry not, for there are a variety of financial products in the market, that help you ward off your financial troubles. Mainly, in case you need any additional funds other than your liquid assets, you take a loan from a bank or other similar financial vendors.

But, mention the name loan and many people have the day time nightmares of losing their homes and other assets to debt-collection agencies. And they have a reason to be wary, for if you put your home or other assets as a collateral, banks may repossess them in case of non-repayment of loans. A good way out of such a predicament is opting for an unsecured loan.

An Unsecured Loans is the loan that does not require any collateral. Collateral is the security against which the lender sanctions a certain amount of loan to a borrower.

The best part about an unsecured loan is that your home or any other property that you possess remains safe and in case of any unforeseen circumstance, you default on your payments, your assets remain secure.

However, there is a major flip side to unsecured loans as well. Since the bank has no guarantee to back up its money, in case you are unable to pay, it charges a higher interest for the capital it invests on you. Other than that, the repayment period is usually much shorter in case of unsecured loans, for the banks are wary of giving away money for very long periods of time altogether.

These restrictions are not arbitrary, but are based on sound economic principles. The lender is taking a higher risk by giving you his money, with no guarantee that he will get it back. Therefore, a higher interest rate for unsecured loans is justifiable.

Unsecured loans are fairly easy to get. Often you can apply online and will be issued the money as soon as the basic procedures and regulations are met with. However, people with adverse credit ratings and specially, adverse CCJs might find it difficult to get credit from top-end financial giants.

Though, there might be several lower end packagers and other smaller operators, who might offer credit even in adverse credit conditions, but the amount will accompany a sky high rate of interest. Still, it is any day better than putting up your property as collateral, just to raise money for the repairs.

Shop around carefully and gather information from a lot of merchants, before finalising on an unsecured loan. Higher the APR goes, higher the monthly installments of the payments are. If your monthly liquidity is not very good, you might find it difficult to meet the strict repayment schedule, leading to further deterioration in your credit ratings. So, look for a loan that allows you to make smaller payments in the beginning of the loan term, and then allowing you to increase payment amount as your financial position improves.

Unsecured Loans are the best way to raise money, when you don’t want to risk losing your home to the collection agencies. They are ideal for short to mid-term loans for comparatively smaller amounts. To fulfil all your obligations at the minimum risk, unsecured loans are the ideal way out.