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Have you gotten some money through an inheritance or a big bonus? You may want to consider using this money to pay down the principal balance on your home loan and ask your lender for a home loan refund to lower your monthly payments.
Or maybe you’re thinking about refinancing your home loan. If you have some extra money saved that you can apply to the principal balance of your loan, a loan modification may be a better option through your lender than a traditional refinance because you can avoid the inconvenience and expense of a refinance.
What is a mortgage reform?
A recast or new mortgage amortization allows you to lower your monthly mortgage payments. Typically, with a traditional installment loan, you borrow money and pay it back in fixed monthly payments over a period of time agreed upon with your lender. Part of your monthly payment goes toward repaying the loan, while the rest goes toward interest costs.
However, if you are able to make a large extra payment on your loan, you can reduce your outstanding principal balance and lower your monthly payments because you will pay less in interest. But you should ask your lender to see if you can modify your loan to adjust your monthly payments, because your lender may not offer an option to automatically reform or adjust your monthly payments.
Why would you want to recast your mortgage?
It all depends on what your individual circumstances and financial goals are. Talk to your financial advisor to review your financial plan. Some possible options include:
- Refinancing your loan, if your mortgage rate is higher than current interest rates.
- Make additional payments biweekly, biweekly, or annually if you want to pay off your mortgage quickly, since a loan modification will not shorten the term of your loan.
- Restructure your loan, if you have credit problems and don’t qualify for a home refinance, and have the funds to make a large payment.
- If you’re paying off the mortgage on two loans because you bought a new home before your old home was sold, you can use the proceeds from the sale of your old home to pay off your new home loan balance and reform it. (Note: You generally cannot do a loan recast within the first 90 days of a new home loan.)
How do you go about refunding your loan?
You should contact your current lender to see if they offer this service and apply. Depending on the type of loan you have, you may or may not be eligible for a recast. Generally, conventional loans and conforming loans from Fannie Mae and Freddie Mac are eligible, while FHA and VA loans are not. Also, fixed-rate loan recasts are more common than adjustable-rate mortgage recasts or jumbo loans.
Loan modification usually comes with a fee, sometimes as low as $150 to $250. In addition, you’ll need to make a specific balloon payment toward the principal of your loan, such as $5,000 or 10% of the remaining loan balance, to qualify for a loan modification. Ask your lender about their recast requirements.
Is Loan Reform Right For You?
If you need help determining if a loan modification is the right option for your individual situation, contact the experienced mortgage specialists at Grandview Loans in Indianapolis. They can run some numbers to calculate your loan payments for a refunded loan instead of refinancing or making additional payments on your existing loan and help you review your options. Contact them today at 866-690-4920 .
