If you are having trouble keeping up with your mortgage payments, you may have considered doing something to change the terms of your loan. There are basically two things that you can do to get more favorable loan terms, and they are mortgage modification and mortgage refinancing. Many homeowners think that these two processes are the same, but they are different in many aspects to one another. Let’s take a look at the differences between refinancing a mortgage and modifying a mortgage.

Loan modification is usually the first step that homeowners will take to change their loan terms. To modify your mortgage, all you have to do is ask your mortgage company to alter the terms of your loan. You will still be holding the same mortgage; the only difference is that you will be making payments according to new terms. You can request for mortgage modification if you are late on payments, have difficulty keeping up with rising interest rates, or find that the monthly payments are too high. Your lender can modify your loan in a number of ways, including lowering the interest rate, extending your loan term, or forgiving a portion of the outstanding balance. Mortgage refinancing, on the other hand, involves taking out a new mortgage to pay off your existing mortgage. The new mortgage may come with lower interest rates or other terms that make it easier for you to make your monthly payments. You can get refinancing from your current lender or a new lender.

It is easier to apply for mortgage modification than mortgage refinancing. Since your mortgage company already knows your credit history, you do not have to undergo a credit check to modify your mortgage. However, you lender will try to determine whether you are able to repay your loan under the new terms. The success of your application does not depend on how much your home is worth. Actually, most people who request for mortgage modification owe more than the amounts that their homes are worth. Also, you are not required to pay closing costs, points, new title insurance fees, or application fees. If you are planning to refinance your mortgage, your lender will check your credit history and appraise your home. The appraisal is conducted to ensure that your home has sufficient value to secure your new loan adequately.

Modifying your mortgage is easier and less time-consuming, since it does not require an appraisal and a lot of paperwork. It is also a more affordable option, usually costing only a few hundred dollars. Another advantage of getting a mortgage modification is that you do not have to start from scratch. If you request to modify your mortgage after the tenth year of your 20-year loan, you will only have to make payments for another 10 years, because you are still holding the same loan. In mortgage refinancing, you are actually getting a new loan, and you have to start paying from the beginning of the loan term. The main benefit of refinancing a mortgage is that it allows you to pull out equity, which can be used for consolidating debt, pursuing investment opportunities, funding purchases, or other purposes.

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