The Debt Management Expert

Overview
For qualified homeowners that need to renegotiate the terms of their mortgage with their lender, a loan modification is a good option when properties values are dramatically declining. Loan modifications are the best recourse for homeowners looking to renegotiate the terms of their loans, because the homeowner is unable to make payments under the original agreement or because the value of the property is worth less than the homeowner owes on the mortgage. Loan modifications also serve the needs of lenders that would prefer to avoid foreclosure and a sale of the asset at a significantly reduced price.

Refinancing is advisable in a stable or increasing market. It gives homeowners the ability to take cash out when needed, lower their interest rate, and fix their interest rate, among other options. In today’s declining market, refinancing is available to a much smaller group of homeowners — only those who are current with their mortgage payments, have a strong credit history and job security, disposable income after all bills are paid, and significant equity in their property are eligible.

Comparison Shopping
Whether you will be able to refinance or qualify for a loan modification depends on your individual situation. Most homeowners interested in making a move in this market are the ones who are in trouble and therefore do not qualify for a refinance. If you are behind on your mortgage, always attempt a loan modification first. When a homeowner is late but can show the ability to pay a lower payment, the benefits from a loan modification will greatly outweigh that of a refinance. The interest rate on such a loan modification will generally be lower than that of an on-time homeowner with good credit who pays to refinance.

Getting approved for a traditional refinance is extremely difficult. Since Wall Street is no longer purchasing loans from originating banks, lenders have cut programs to less qualified homeowners. When considering refinancing in a market where equity has evaporated, causing balances to exceed value, there is no option to refinance. This is true for all homeowners, sub-prime as well as qualified homeowners.

If you are a homeowner that is upside down, you would have no option to refinance and your best bet would be to seek out a loan modification. If you are not late but are upside down, loan modification companies such as ours can make it a seamless and transparent effort that could potentially knock tens of thousands of dollars off of your principal balance. Who could argue with that?