Ten years into your mortgage, you still have 20 years to go and a fixed interest rate of 7.5 percent. Those don’t sound like very favorable terms, especially when interest rates remain near record lows. If you’re thinking of changing mortgage terms to get a better rate or a shorter mortgage, but aren’t into the idea of starting from scratch or don’t qualify for a refinance right now, you still have some options. Your lender might be willing to modify your loan so that you get better terms and a more agreeable payment structure.
When you hear the phrase “home loan modification,” you might automatically picture people struggling with the threat of foreclosure. But you don’t have to have financial troubles for a lender to agree to modify or recast your mortgage. According to Bankrate, if you have your mortgage recast, or reamortized, you pay down a portion of the loan so that its principal is significantly reduced. While your interest rate and the terms of the mortgage remain the same, your monthly payment drops, and so does the amount of interest you’ll pay over the life of the loan.
Not every lender offers mortgage recasting, though, and you will need to pay a small fee to the ones that do. Another drawback of using recasting for changing mortgage terms is that you need to have a hefty amount of money on hand to put toward your mortgage.
Another way to change your mortgage without refinancing is to simply ask the lender to modify the terms of your loan. If a lender owns your mortgage outright, they might be willing to reduce the interest rate you pay on the loan. You’ll have the same mortgage as before, but it will have a smaller rate. Requesting a mortgage modification has a few benefits over refinancing, the big one being that you won’t have to have your home appraised and can avoid closing costs. The process isn’t completely free, though, as many lenders do charge a fee. Another caveat is that your credit will be examined, and you might be turned down if your score isn’t excellent.
If you want to adjust more than just the interest rate on your loan, refinancing might be the best way to change your mortgage terms. With refinancing, you can start over completely, affording yourself a shorter term loan and an adjustable interest rate (or a lower fixed one). One option that lets you pay less over time and for a shorter period is a Super Saver 25 mortgage, which takes a few years off of a 30-year mortgage and only raises your monthly payment slightly.
Whether you refinance or ask your lender to modify your loan, changing its terms can mean more money in your pocket. If you can afford to pay more each month now, it can mean substantial savings in the long run.
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