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For many homeowners, paying the monthly mortgage payment is a huge undertaking, especially for those homeowners who have a variable rate mortgage that has recently adjusted to a new, higher rate. Fortunately, the United States government has stepped in and created programs that allow homeowners to cut their risks of losing their homes to foreclosure. And while refinancing or modification of your existing mortgage is tricky, the first thing you need to determine is which you should do – modification or refinancing.
If You Are Facing Foreclosure
If you are facing foreclosure of your home mortgage, the government has implemented programs that provide an incentive for your lender to either modify or refinance the mortgage and keep you in your home. In this way, homeowners who do not qualify for refinancing in the traditional fashion can still find assistance. This is usually the case when home values have fallen in your area and the bank or lender does not feel comfortable with altering your loan or refinancing a mortgage that is underwater.
Modification Under This Plan
Mortgage loan modification can help thousands of homeowners to stay in their homes with more affordable monthly payments. The mortgage modification allows your lender to rewrite the terms of your loan to include a better interest rate (a lower interest rate) and a longer term (up to forty years for some borrowers). This has the effect of lowering your payment because you are paying less interest and stretching your payments out for a greater number of years.
To qualify for mortgage loan modification, you must have taken out your mortgage anytime before January of 2009, and you must be modifying your existing mortgage on your primary residence, not on a second home. You must owe less than $729,500 on your home, and you must be able to provide full disclosure of your financial situation with documents to back it up, like tax returns and paystubs. You must also provide the lender with a financial hardship statement or affidavit that lets them know why you are having trouble making your payments – job loss, sickness that prevents you from working, etc. Your mortgage payment must take up 31% or more of your pretax income, and your new payment amount must be less than 31% of that amount.
Refinancing Under This Plan
For those homeowners who are eligible to refinance their existing mortgages (in lieu of mortgage modification), there are qualifications that must be met. Refinancing can help you get out of a variable rate mortgage that has adjusted to a rate that is not affordable. Only those mortgages that are written by Freddie Mac and Fannie Mae qualify for refinancing. If you are not sure if Freddie or Fannie have a hand in financing your mortgage, check with your lender – because many, many mortgages are underwritten by these two giants in the mortgage industry, and chances are you do not even know it.
You must also prove that you have sufficient income to make your mortgage payment, as determined by your income to debt ratio. Your refinanced mortgage cannot be more than 105% of the current value of your home, as determined by current market values for your area. Mortgages refinanced under the new plan will be written as fixed rate mortgages for fifteen or thirty years.
Why Now Is The Best Time To Modify Or Refinance
Now is the best time to modify or refinance your mortgage because of the low, low rates that you can get, which will make your home cost less in the long run. While the beginning of this year saw mortgage interest rates drop below 5%, most rates for the coming months and the beginning of next year will hold steady right at 5%, which is a great rate no matter how you look at it.
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