What’s the difference between a mortgage modification and a refinance?

Where to begin? First off, a refinance involves the payoff of an existing loan with a new loan. A mortgage modification is not a new loan, but rather, a change to the terms of an existing loan. Mortgage modification is a compelling alternative when a homeowner is denied the ability to refinance and they are struggling to maintain their house payment.

Refinancing requires that a lender verify your credit history to determine if you are credit worthy. Mortgage modifications do not require a credit check. Your lender will attempt to determine your ability to repay the loan at the new, modified terms, based on information you provide them. Whereas a delinquent payment history will typically result in the denial of a refinance request, delinquent payments typically will not affect the outcome of a mortgage modification.

An appraisal is almost always required when refinancing a mortgage. This is to ensure that the new loan is sufficiently secured by the collateral, your home. A mortgage modification request is not dependent on the value of your home. In fact, most modification candidates owe more than their homes are worth! This is the primary reason they are unable to refinance.

Homeowners often refinance their homes to access additional equity which they might use to consolidate debt, fund other purchases or pursue investment opportunities. Mortgage modifications do not allow homeowners to take additional “cash out”. However, you can most likely roll delinquent payments and, if applicable, legal fees into a mortgage modification.

Lastly, mortgage modification often costs less than a new mortgage refinance. Although mortgage modification is more limited in some respects than refinancing, its importance as an effective tool to assist homeowners cannot be understated. The professional mortgage modification services that Michigan Mortgage Modification provides are a cost effective alternative for struggling homeowners unable to refinance for any reason.

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