If you’re buried under mortgage debt, understanding the full array of options available for your financial situation can help you get back on track with your payments. For homeowners, two of the most popular options are mortgage modifications and refinancing. Many borrowers must carefully look at these two options to determine the best choice for handling their mortgage debt. While a mortgage modification and refinancing are both incredible opportunities, each provides specific benefits for specific situations.
Understanding the Benefits of Refinancing
Refinancing is the process of taking out a new loan with a lower interest rate and more favorable terms to replace the existing loan. This effectively makes the mortgage debt more favorable to handle and offers great advantages for homeowners. Good credit is required for refinancing, as you must continue making payments moving forward. Benefits of refinancing include:
The ability to shop between different lenders, searching for the best terms
A straightforward process that doesn’t add to the stress of financial struggles
A quick turnaround that takes 30-45 days to complete the entire process
However, refinancing can present a number of challenges, most of which are related to home equity. When property values decline, it can be more difficult to achieve refinancing, though there are various programs, such as HAMP, available at your disposal. Regardless, the benefits that refinancing provides greatly outweigh any potential challenges.
Is a Mortgage Modification a Better Option?
On the other hand, a mortgage modification is an adjustment to the interest or terms of your current loan. Most of the time, a mortgage modification isn’t permanent and only lasts long enough to allow the homeowner to regain control of his or her mortgage debt. If refinancing isn’t an option, mortgage modification is often the first choice for homeowners. Fortunately, a mortgage modification doesn’t require any closing costs, which can save the homeowner quite a bit of money in the long run. A mortgage modification also includes a trial period to determine whether or not the new plan will work for the homeowner.