Refinancing Roadblocks

When looking to lower your monthly mortgage payment there are many options available. A mortgage loan modification may be able to change the terms of your existing loan enough to help you find relief from a high monthly mortgage payment. Lenders often prefer refinancing over mortgage modifications, mostly because they stand for a bigger benefit that way. Refinancing your mortgage can be a good way to lower your payment by obtaining a new mortgage at a reduced interest rate. However, before you sign that refinancing application, there are a few things you should know about refinanced mortgages.

Equity Problems

What many people don’t know about refinancing a mortgage is that the lender can be very picky about which properties qualify. One of the biggest reasons for being denied a refinanced mortgage is a lack of equity in the home. More specifically, owning a home that is worth less than is owed on the current mortgage. If you owe more on your mortgage than the home is worth, most  lenders will not approve a refinancing option. Why? Because they don’t want to lose money in the transaction when a new, refinanced mortgage is taken out on a devalued property.

Loan Problems

A common misconception about refinancing a mortgage is that it only modifies the existing mortgage’s interest rate. Not true. When you refinance a mortgage you are taking out a new loan on the property at a different interest rate. Since the refinanced mortgage is a new loan, the life of the loan starts over. For example, if you had paid 10 years towards your current 30 year mortgage and then refinanced into a new, lower interest 30 year  mortgage, the life of the loan restarts at 30. This means that the 10 years you put in towards paying the interest and principal of the old loan is gone and the clock has been reset for your new loan. Not only will the life of the loan be restarted but you will be required to pay all of the closing costs (for the second time on one property) associated with the new loan.