Understanding Loan Modifications and Refinancing Options

Sam should consider a rate modification before refinancing to potentially lower his mortgage rate with less hassle.

### Understanding Loan Modification vs. Refinance: What Homeowners Need to Know
* 🏠 Sam recently bought a house at a **6.99% interest rate** and is curious about the differences between refinancing and loan modification, believing loan modification might be the **better option**.
* 💡 At Money.com, we provide extensive resources on housing, including **calculators for determining how much house one can afford** and **checklists for home buying**, which can help answer such questions.
* 📞 Before proceeding with a refinance, it's advisable to **contact your current lender to inquire about a rate modification**, especially as interest rates are expected to **drop**.
* 📉 If your current mortgage rate is significantly higher than market rates, you should **negotiate with your lender**, using the potential of **refinancing as leverage** if they initially decline.
* 🏦 Credit unions often prefer to keep your business and may be more willing to offer **rate modifications** compared to larger lenders who might stick to their **policies**.
* 💰 The process of refinancing can be costly due to various fees, whereas a rate modification generally involves **filling out a simple application and paying a minimal fee**, often resulting in a **lower interest rate with less paperwork**.
* 📝 It’s important to consider the overall costs and benefits of each option, as refinancing can lead to **significant expenses** while a rate modification may be a **simpler and more economical solution**.
* 💬 A real-life example illustrates how a friend **saved money by opting for a rate modification instead of refinancing**, highlighting the **importance of exploring all available options**.

[Music] We have Sam's question next. It says, I recently bought a house at 6.99% as I hope for interest rates to drop. Can you explain a refinance versus a loan modification? Loan modification seems to be the way to go, he says, but what do you think? Oh man, I love this question so much. We love housing questions so much that we've actually dedicated an entire section of our website at money.com to housing, like how do I know how much house can I afford? We have a calculator there. Or when it comes to buying a house, how do I know the things that I'm supposed to do? Go check out our house buying checklist. All of that is available out there because a lot of the things that we speak to are questions like this. Hey, I heard somebody say something about a rate modification, and we actually do content on this kind of stuff. So if you're not subscribed, make sure you subscribe 'cause as rates drop, I'm sure we'll be talking about this more. But one of the common

Things that people do is they say, I'm going to go refi. I'm going to go refy. One of the first questions we always tell someone is, Hey, before you refi, before you do a refinance, there might be another step that you ought to go do. Yeah, this question was phrased in a way by Sam that it said, What's the difference between loan modification or what we call rate modification versus a refinance? I'll tell you, I wouldn't do this as a verse. I would say that this is a loan or rate modification should be part of your refinance journey is because, yes, rates are going to be coming down. All indications are potentially a half a percent in the next month, um, so you'll start seeing some direct impact on that with your um mortgages, your credit cards, and all kind of other things out there. So, the first thing I would do is you look to find, you call your lender um, who holds your mortgage, and before you start the refinance process, and you call them up.

and ask them, Hey, look, rates are coming down. My mortgage rate is now, you know, half a percent, 1% greater than where the market is. Can you do a rate modification? Their initial answer might be no, but I wouldn't stop there. But I would ask a question. I'd be like, Look, if you say no, I'm potentially going to move my business to, I'm going to refinance this loan. And if you have other accounts with them, you could even use that as part of the bargaining position. But you should, at a minimum, any refinance, you should call your current lender and just ask them if they offer rate modifications. It's easiest. I've seen it, especially with credit unions. If you have your mortgage held by a credit union and others, I know for a fact that they'd rather keep your business than just watching it walk out the door. So, you call now. You will get to a situation, especially if you're with a big lender, 'cause I've had this. I call every time I've ever refinanced. I call

my existing and I remember was it um Mr. Cooper who was who brought out Nation Star or whatever it was and I asked them I was like hey is this something I can I can refin you know get a rate modification they're like no how no way no how um and they were serious you could tell you know the person understood what I was asking for but that's just their policy was they'd rather make you go through the process of refinancing so if that's the case then you have to do the math of Should I refinance and and and this is the thing that we're going to get into a strange dance here as rates start to drop um when do you pull the trigger on the refinance and and that's why um when it gets around a 1% drop from what you're paying versus the you you you need to then look into and see if you can do prepaid cost so you don't have to pay anything for the refinance there's all kind of other things we're going to

be creating more content. We even have... that's why I would lean into what Bose said. Go to money.com resources. We already have some deliverables and resources on refinancing, on home buying. All that stuff's out there, but um, don't just jump into a refinance. Call your current mortgage company to see if they can do a rate modification. Here's how I love this story. Last time, this was a big issue. I said it, and then I have a close friend um, down in Georgia. I was on a trip, a golf trip, and he goes, You know, I check in on your content from time to time. He goes, Dude, you saved me so much money by just with that tip. He never heard of a rate modification. I called my Bank um, they want to keep my business, and they were able to drop my rate. And sometimes it's okay, they might even charge you a th000 bucks, or I was going to say it's a... in my experience, it was a couple hundred bucks relative to the closing of a refinance.

mortgage was a lot more, and the paperwork was a lot less. I mean, it was like I called my mortgage company a couple of years ago and said, Hey, I'd love to do this. They said, Okay, great. Here's the application. It's like a two-page application, cost me a couple hundred bucks, and it dropped my rate by like a quarter of a percent or something like that at the time. So, it's fascinating how much different those two processes are. It doesn't have to go through the whole... 'cause the problem with refinancing, if you think about it, it's an expensive transaction because you have to get attorneys involved, it's got recordings with the local governments, there's just a lot of moving parts when you... 'cause you're basically ending one loan and starting a new, so all the recording fees, all the title stuff, all that stuff just has to go through its process, so it's expensive. Whereas on rate modification, it's basically just the bank saying, You know what? We want to keep your business.

internally, we're going to make you fill out this application, pay these few hundred, um, just to keep your business and lower your rate.

Refinance or Loan Modification: Which Should I Choose?

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The Money Guy Show

Sam is considering a loan modification versus refinancing his mortgage at 6.

The speaker emphasizes that a loan or rate modification should be part of the refinancing journey.

They suggest contacting the mortgage lender before starting the refinance process, as rates are expected to decrease soon.

Homeowners should ask their lenders for rate modifications if their mortgage rates are higher than the market.

Using the threat of refinancing or having other accounts with the lender can strengthen the bargaining position.

Credit unions are often more willing to offer rate modifications to keep customers, and it's important to consider the timing of refinancing as rates drop.

The Benefits of Mortgage Rate Modification

Mortgage rate modifications can be a cost-effective alternative to refinancing, with lower fees and less paperwork.

Calling your current mortgage company to inquire about a rate modification can lead to significant savings.

The process is simpler and less expensive than refinancing, making it a viable option for those looking to lower their mortgage rates.

The business will require you to fill out an application and pay a few hundred dollars.

This process is aimed at keeping your business and lowering your rate.

The internal strategy focuses on maintaining client relationships through these fees.