The coronavirus pandemic has had an undeniable impact on personal finances. Amid record amounts of unemployment, many Americans are experiencing trouble staying on top of monthly obligations. That struggle • combined with record low-interest rates • has led many people to think about a refinance or mortgage loan modification. The question is: What's best for your financial situation?
Here's what you ought to know before changing the terms of your loan.
Is it better to refinance or get a loan modification?
There are some distinct differences between refinancing your loan and becoming a loan modification. Before you can determine which choice is best, you're going to need to completely understand the definitions of each • in addition to their benefits and drawbacks.
What is refinancing?
Refinancing financing involves taking out a brand new loan and taking advantage of it to pay off your old one. Doing so allows you to change the terms of the loan or to take out a lot more than your debt in your loan to use the excess to cover a big expense. Notably, you don't have to refi using your current lender, so that you can look around for the best refinance rates.
To find out more about refinancing – whether it's has given or mortgage – turn to PayPasser. PayPasser can take you step-by-step through the procedure from beginning to end and assist you to compare lenders and rates within just minutes (with no effect on your credit rating). Plus, it's free.
For those with private student loans, you might want to take a look at PayPasser's rate table, which allows you to compare private lenders according to the loan type, loan amount, and much more.
Pros and cons of refinancing
- You can take advantage of the present low rates
- You can lower your monthly payment
- You can change the relation to the loan (you are able to switch from the fixed-rate mortgage for an adjustable-rate loan or from a 15-year loan to some 30-year loan)
- You have the option to borrow more money than you currently owe around the home
To improve your likelihood of acquiring the lowest refinance rates, be sure you compare mortgage lenders. Luckily, you will find online for free tools available that make refinancing your mortgage easy. By entering some simple information, you are able to pre-qualify in minutes.
- You'll need to pay closing costs
- Your savings will vary (according to your current interest rate and time in the home)
- You'll have to go with the underwriting process again
What is a mortgage loan modification?
Rather than getting a brand new loan, mortgage loan modification involves changing the terms of your existing loan. In this case, you will use your existing lender to change the loan terms in order to make your monthly payments simpler to manage.
While it's not necessary to go through the underwriting process again for any modification, it is necessary to get your current lender to agree to the change in loan terms. For this reason, mortgage loan modification is less frequent than mortgage refinancing and frequently only happens in case your loan is underwater or you are significantly behind on your payments.
Pros and cons of loan modification
- Accepting a loan modification can sometimes help you avoid foreclosure
- You might be able to secure better, more affordable loan terms
- You don't have to pay closing costs to be able to modify the loan (however, there are sometimes processing or legal fees associated with mortgage loan modification, those are often wrapped to your principal balance).
- Modifying your loan may negatively impact your credit score
- There's no guarantee your lender will agree to modify the loan terms
- If you miss a payment after modifying, it can escalate the foreclosure process
How can refinancing or loan modification affect my debt?
Depending on what kind of debt you•re experiencing, refinancing and mortgage loan modification may be handled differently. Here•s how common types of debt may take a hit:
Though the relation to a home mortgage modification are often as much as your lender, this method might involve extending the length of your loan term, securing a much better interest rate, or changing from an adjustable-rate mortgage to some fixed-rate loan in order to help you save on loan payment. While it•s easy to do all of those things with a home refinance too, in this instance, you•ll have more input around the relation to your new loan.
Visit PayPasser to explore your mortgage refinance options and also to compare rates and lenders.
Student loan debt
Where student education loans are worried, your modification options will largely depend on the types of loans that you have. Federal student loans, for instance, permit you to modify the loan by changing your repayment plan. Notably, income-based repayment plans can also be found. Meanwhile, private education loan debt modification options often vary according to the lender.
While Federal Student Aid has a way to refinance student loan debt through a loan consolidation, if you have your heart set on doing a education loan refi it'll probably be via a private lender.
If you can be eligible for a a student loan refinance at a lower rate than you're currently paying, you will find often no disadvantages in refinancing. You can use PayPasser to check student loan refinancing rates from multiple private lenders at once without having affected your credit rating.
Use a web-based education loan refinance calculator to obtain a sense of what your brand-new monthly payments could be.
Personal loan debt
For probably the most part, modifying an unsecured loan is going to be similar to modifying your mortgage. You•ll work with your lender to modify the loan length or else make your payments less expensive. However, refinancing provides you with the chance to look around for a financial loan with better terms.
Looking to refinance your individual loan? An online marketplace like PayPasser will help you see your loan options.
The bottom line
Ultimately, the decision on whether or not to modify or refinance your loans depends on whether you really can afford your present payments. In either case, changing the relation to the loan could be a way to make use of the current record rates of interest and also to decrease your monthly payments. Don•t hesitate to reach out to your lender to ask about the potential of either option.