Modification vs. Refinance


In this post, we’re going to go over go over the difference between a home loan modification and a home loan refinance.

A loan modification is when you negotiate with the lender who has given you the loan, to change the original terms of the loan that they gave you, while a mortgage refinance is when you get an entirely new loan from some time a different bank, which pays off the old mortgage loan that you have.

Typically, homeowners will pursue a loan modification if they’re struggling to make their mortgage payments and as a result they must try to renegotiate the terms of their loan with their lender. Some lenders might offer to increase the term of your current loan, to say a 40 year term, to lower your monthly payment.

Or the lender who currently owns your mortgage note, might give you the option to pay only on a certain portion of your loan amount, with the remaining loan amount being deferred. One thing to keep in mind is that banks typically will want to see that the borrower has no other choice but to modify their home loan or risk losing their property.

As a result, banks will sometimes tell clients to miss mortgage payments on purpose, to make it look like they have no other option but to modify. The downside to this is that even after missing mortgage payments on purpose and showing that they need to modify, some homeowners still won’t get approved for a loan modification with their bank.

This results in the homeowner destroying their credit, and their ability to get a new home loan.

With all that said, loan modification can work out well and sometimes save the homeowner from having to foreclose on their property.

But keep in mind that any time you miss mortgage payments, you jeopardize your ability to get a new home loan in the future.

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