Mortgage Loan Modification Instead of Refinance
Lenders don't want to tell you about a little secret that can save you, the borrower, thousands of dollars in refinance costs. It's called a mortgage loan modification.
Rates have increased and you want to refinance your adjustable rate loan to a fixed-rate loan. You contact your lender and discover that because all your payments have been made in full and on a timely basis, you're qualified to refinance. New papers will be required, and that will mean a new closing, with the expense of doc stamps, legal fees, survey, appraisal, and loan fees.
You may be able to refinance without filling out a pound of forms or paying high closing costs. For example several years ago a friend wanted to refinance an investment property. He called the lender and said, "Let's modify the loan." By agreeing to terms with the lender in a simple letter, the lender offered to do a mortgage loan modification at a new, lower interest rate. The lender agreed because the lender wanted to keep the loan.
The bottom line was that the property was not refinanced, but instead modified. Because the terms of an existing loan were changed, there was no need to establish a new loan. Since there was no new loan, there was also no need for a new closing, title search, or appraisal fees.
Your Loan Modification Rights
Most types of adjustable rate mortgages come with a feature that allows the loan to modify to a fixed rate loan if the loan is kept current. Read your mortgage note or check with your lender for details about your loan modification rights. You could save thousands in future interest without the expense of closing costs.
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