With multiple options for resolving mortgage debts it can seem overwhelming to know which is right. Each person’s financial situation is unique, which means that not all foreclosure alternatives bring the same benefits or risks to the table. Knowing the pros and cons of each option can help you determine which option may be best for your situation.
Refinancing a mortgage is creating a new mortgage loan with a lower interest rate. These offers are appealing because they can lower your monthly payments, which frees up some income to be used elsewhere in your budget. However, because they are a new loan you will be subject to pay closing costs associated with the new loan. Since the new loan starts over you will most likely end up with a longer loan term.
Loan Modification allows you to change the terms and conditions of your existing mortgage loan. In many cases you can obtain a temporary reduction or suspension of payments, extension in the life of the loan or reduction in the principal amount owed. Changing your existing loan can lower your payments without costing you closing costs or other fees for taking out a new loan. However, a mortgage modification can be difficult to secure when lenders hold high qualification standards.
Short Sale is the sale of the home for less than what is owed in exchange for being absolved of the debt liability by the lender. Short sales can prevent the negative credit damage associated with a foreclosure, while allowing you to get out from under the mortgage debt. However, you will be forced to walk away from the home after the sale. Further, the process can be stressful and time consuming as lenders often wait several months for the best offer on the property.
Deed In Lieu is the voluntary forfeit of the home by signing over the title to the lender in exchange for being released from the mortgage debt. A deed in lieu is a better alternative to a foreclosure. However, most lenders won’t accept a deed in lieu until a short sale has been attempted.