Ever so often clients ask the questions as which is the better option, a mortgage refinance or a mortgage loan modification. There is no definitive answer to this question. The only response would be that it is entirely dependent on the individual’s circumstances. While a mortgage loan modification is carried out with your existing home loan provider and involves no or little cost a refinance involves dealing with another lender and comes with additional break costs for breaking your existing mortgage and also extra refinance costs if applicable. Hence it is entirely dependent on what the client is trying to achieve.

Mortgage Modification Plan

Mortgage loan modifications are carried out with your existing bank or mortgage lender. In this case if you have been struggling with your repayments and your mortgage loan account has been delinquent, you may seek the help of your mortgage company and ask them for a mortgage modification plan. There are several ways this can be done. For instance in certain cases the bank might increase your subsequent 12 months payments in order to help you catch up on your missed payments. In other words they will be amortized over a 12 month period. In other cases the bank might add the missed payments to the balance of your loan and allow you to pay it out over the life of the loan. This will increase your payments by a bit. If however you qualify for one of the mortgage loan modification programs which your mortgage provider o bank has you might be able to reduce your interest rates and subsequently mortgage repayments on your home loan.

Mortgage Refinance Loan

With a mortgage refinance loan, things are a little different especially if you are considering a streamline mortgage refinance. In this case you might change your home loan provider or bank for mortgage refinancing. Clients usually do this owing to the fact that another bank or lender is offering a better product or interest rate. With a mortgage refinance you pay out your existing mortgage provider and another bank or mortgage provider places a charge over your property under the newly signed agreement. In the current economic climate owing to the fact that the property market is not doing as well as it was I is possible for your property to be valued less than it was may be a year or two ago. If this is the case then you might not be able to refinance your mortgage owing to the fact that the bank will not have the same value o work with as your previous lender did when you first got the mortgage. In addition to this factor clients also need to consider that there are additional costs which are associated with a mortgage refinance such as refinance charges and break costs.

Obama Loan Modification And Mortgage Refinance Loan Programs

This is a new initiative introduced by the Obama government to help consumers in this tough credit climate with mortgage modifications and mortgage refinances, depending on what their situation demands.

Obama Mortgage Loan Modification

In order for a client to qualify for the Obama mortgage modification program, the loan must be under the under the jurisdiction of Fannie Mae or Freddie Mac. In addition to this the property in consideration should be the primary residence of the applicant and the mortgage should have come into existence prior to 1st January 2009 with an overall balance of less than or equal to 729,750 for a single family. Some of the features of the program are:

• The government shares the costs of the loan modification whereby the costs of the mortgage get lowered from 38% of the gross income to 31%.
• The client receives $1000 for staying current on the loan.
• If the lender has a successful qualifying loan for the loan modification then the lender receives $1,500

Obama Mortgage Refinance Loans

In order to qualify for the Obama government’s mortgage refinance loans the client needs to meet the following criteria:

• The mortgage refinance property should be an owner occupied property.
• Once again it must be a Fannie Mae or Freddie Mac loan.
• The mortgage payments should be up to date and should be able to support the new repayments.
• The existing mortgage loan to value ration should be between the 80% and 105% mark to qualify for this program.

Hence it is very important that the client assesses what they are trying to achieve prior to applying for a modification o refinance. Both mortgage refinances and mortgage modifications can be very advantageous and at the same time help the client achieve diametrically opposite results.

References:

1. Home Affordable Modification - Making Home Affordable
2. Home Affordable Refinance – Making Home Affordable
3. Obama’s Loan Modification Plan – US News