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Refinance or Loan Modification: Making the Choice that is Right for You

In this time of uncertainty people are often faced with the possibility of finding a loan modification services company. The question is often one that is very difficult for a homeowner to make because it is often the difference between loan modification and mortgage foreclosure. There are things you may wish to consider before you make any final decision.

One of the things you need to consider when attempting to decide between refinancing your mortgage and entering into loan modification is that refinancing will only provide you with a lower market rate (if indeed you purchased your home when interest rates were higher) while loan modification can bring your interest rate as low as 2 percent and possibly a term of up to 40 years.

It’s important to keep in mind there are also different qualifications between these two options since you will need to qualify to refinance your mortgage the same as you would for a new mortgage loan. Loan modification on the other hand only requires the homeowner to have the income necessary to make the new payments: 31 percent of gross monthly income. Of course other obligations may be weighed as well, but this is the primary concern of lenders during a loan modification.

Keep in mind that not everyone qualifies for loan modification; you must currently be making payments in excess of 31 percent of your gross monthly income. For those who are currently paying less than that in mortgage payments, refinancing may be the only option to avoid mortgage foreclosure. Of course you also want to look at the fact that because of the reduced interest rate when you enter into loan modification you are not likely to build any substantial equity, especially in today’s market. That alone may lead some homeowners to choose refinancing their homes over loan modification unless they are in dire financial straits and really need the reduction in mortgage payments.

Another consideration is the status of your credit. If you are considering refinancing your mortgage but do not have the credit to substantiate it, your best bet is loan modification (provided you qualify). On the other hand if you don’t qualify for loan modification you may have to pay a higher interest rate in order to refinance your home in order to avoid mortgage foreclosure. While this may not be the best option if you are currently facing a financial crisis, losing your home could make your problems even worse.

Always weigh your options carefully before you make a final decision about refinancing or entering into loan modification. Both options have advantages and disadvantages; you need to choose the one that is right for you and will best suit your financial needs. Do not make the decision quickly but rather take the time to research both options and prepare a list of the benefits. Only after research and careful evaluation and analysis should you make a final decision about a choice that is so important to your financial future and restoration of your good credit.

Peter Christopher

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