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What Is the Difference Between a Loan Modification and Refinancing?

Posted on in Loan Modification

North Chicago real estate attorney loan modification

Are you having a difficult time making your monthly mortgage payment? If so, the first thing you need to know is that you are not alone. At any given time, thousands of homeowners are encountering situations in which they have trouble meeting their mortgage obligations, and for a myriad of reasons. For many homeowners, 2020 has been especially difficult, as the economic impact of the COVID-19 health crisis continues to cause problems even now. 

If you are struggling with your current mortgage payment, you have a few options. Two of the most common are refinancing your loan or modifying your existing loan. Loan modification and a refinance might seem similar at first glance, but they have very important differences that you need to keep in mind.

Refinancing Your Home

One of the impacts of the COVID-19 crisis is the dropping of mortgage interest rates. Currently, mortgage interest rates are as low or lower than they have been in quite some time. This means that many homeowners could potentially save tens of thousands of dollars by refinancing their homes. With a refinance, however, the homeowner retires the existing loan and takes out a brand-new loan with better terms. Doing so requires a full application, along with proof of income and, in nearly every case, a credit review.

With these factors in mind, a refinance might work for you as long as you have a stable income and have not fallen behind on your payments. A refinance also does not show up as a negative event on your credit report. Another thing to keep in mind is that a refinance will also generally incur closing costs, either to be paid upfront or rolled into the monthly loan payments.

Modifying Your Loan

If you have fallen behind on your mortgage to the point where your lender has started reporting the missed payments to the major credit bureaus, you may not qualify for a refinance. The same is true if you are currently on unemployment due to COVID-19 or any other reason. In a case such as this, you are more likely to be eligible for a loan modification.

With a loan modification, your lender holds on to your loan but changes the terms of the loan agreement. The lender might lower your interest rate, extend the life of the loan, change the type of loan you have, or any combination of the three. A loan modification can provide immediate relief in most cases and generally does not require a particular credit score or specific income requirements.

It is important to remember that a loan modification can show up on your credit report as a negative event. However, it is much better for your credit report to show a loan modification—especially one that allows you to stay current—than to have missed payments or a foreclosure on your credit history.

Contact a Lake County Foreclosure Defense Attorney

For more information about refinances or loan modifications, contact a knowledgeable Libertyville loan modification lawyer. The qualified legal team of Newland & Newland, LLP will help you understand your available options and work with you to bring your loan current. To learn more, call us today at 847-549-0000 to schedule a free consultation.

 

Sources:
https://www.bankrate.com/mortgages/loan-modification-or-refinance-whats-better-for-borrowers/
https://www.thebalance.com/loan-modifications-315514

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