Homeowners in Trouble Again For Not Being Able to Refinance, What Are the Options?

We come across many homeowners faced whose mortgages are set to adjust due to initial terms expiring. This is specially true for homeowners who purchased properties in the last 5 years and received a 2, 3 or 5 year ARM (adjustable) mortgage and now those mortgages are set to adjust a much higher interest rate than they currently have, causing payments to increase drastically. So in an effort to reduce payments, homeowners are searching for various options and refinancing is an option that many consider.

While refinancing is an option for certain homeowners, it has many drawbacks which should be considered. One must meet the high credit requirement; have the equity needed in the property and meet stringent income and debt guidelines. There are many hoops to go through for a refinance. Also, in most cases, the cost of refinancing on the average is about $6,000. It is usually far more cost-effective to consider a loan modification as it costs less and does not have the credit requirement, equity requirement and appraisal, broker, and other related costs.

One other important factor that needs to be considered is homeowners who have gone forward with refinance often receive interest rates that are significantly higher than homeowners who had their loans restructured. While refinance may enable homeowners to put fees on top of their loan it will also increase your loan amount and that money will come out of your pocket.

Furthermore, refinancing will cost homeowners long-term than one may be aware. For example, lets say the loan is currently $350,000 (average loan amount in US), and lender offers you a 5.0% interest rate, payment will be $1,878. On the average, based on our experience, loan modification will yield a minimum of 1% better interest rate than the current interest rate (in some cases we do much better). So citing the example above, if we were able to get 4% interest rate, the monthly payment would be $1670. This is almost $208 per month savings or $2,496 per year! If the loan is a higher amount, clearly, savings will be much more. You can see how a slight rate difference can make a big financial impact in the long run. Referring to the example, during the 30 years, it will translate into almost $74,880 savings to the homeowner. This example does not even take into consideration the effects of lowering principle loan amounts, something we have done for some clients.

It is our experience that a loan modification is in homeowner’s best interest and a refinance will lean towards the interest of the lender. In many cases, it is good idea to consider many options and we also perform a free financial analysis for our clients and help them make some sense of the options available to them.

If would like further information or have any questions, please feel free to contact us.
Joseph Noori

Joseph Noori would like to provide you with more information on various options available to homeowners facing financial difficulties and inability to make their mortgage payments at http://www.nwfin.org/ or by directly calling toll free 866-668-4193.