How do I refinance a modified loan?
Author: Rob K. Blake | Date: May 22, 2008 | Filed In: Refinancing Answers
Interesting question:
“I am in the midst of a refinance. I am completing a modified loan on my previous mortgage and that ends on 7/14. I wish to refi - paying off present mortgage and a credit line of $16,000 loan plus about 4,000 in cash. New rate will be 5.6 percent with another provider. Did not like the former one. I pay my own insurance and property tax. Anything I should be aware of?”
When you say a “modified loan” I’m going to assume you mean due to a pending default or foreclosure you contacted the lender who agreed to change the loan terms to help you stay in the home.
A little clarification is needed. A true “loan modification” is a permanent change in the loan terms usually in the form of a rate drop, an adjustable rate becoming fixed, or a balance reduction…or some combination.
A “forbearance” on the other hand is a temporary suspension of the loan terms for a designated amount of time. Your scenario sounds more like a forbearance scenario. Forbearance agreements usually involve an interest or payment reduction so the borrower can make a smaller payment with the lender actually tacking the “foregone” amounts to the balance of the loan.
This is important if you attempt to refinance a loan since the payoff amount will have the “foregone” amounts plus interest added to the balance. Now that values are dropping and the loan amount increasing, you could run into trouble seeking a refinance. Not only that, but it would virtually impossible to refinance if you actually received a Notice of Default on the property or if you made a number of late payments in this environment.
If you are in a forbearance situation rather than a loan modification, your best bet is prior to the deadline to negotiate a true modification. Show them you paid as agreed during the forbearance put refinancing is impossible, so a modification is the only option.
This way you can get a permanent set of loan terms you can live with for the long haul.
Good Luck!
Author: Rob K. Blake
Previous in Category:« If we are thinking about selling our home within 3 years does it still make sense to refinance?
Next in Category: Should I use a cash-out refinance to pay for an addition on our home? »
Recommended Reading
Related Articles
Reader Comments
How To Use Our Comment Section:
1. To comment on the article or post: Simply cursor down to the bottom and add your comment in the box, hit "Save". After moderation, your comment will appear next chronologically.
2. To comment on a comment (not on the post) or what is called a "nested" comment: Remember the name of the commentor, hit the "Reply" link in the comment you'd like to reply to. You're taken to the bottom where you can confirm the auto-import of the comment name or chose it again from the "Reply to" drop down list. Then add your comment to the box, hit save. After moderation, your comment will appear "nested" under the selected comment.
