Let's say that the interest rate is less today than when you signed the mortgage on your home; and since you are looking for ways to reduce your expenses, you'd like for your home mortgage interest rate to be lowered. Basically, you have two options. The first is to check out several lenders offering the lowest interest rate, then refinance your home mortgage. The second is to have your existing mortgage modified to the lower rate.
Refinancing
If you refinance your current mortgage, you most likely will pay close to the same fees to do so that were charged when you took out your present mortgage. You'll have a decision to make before doing so because you'll want to be sure that those charges will be offset by the rate reduction. One of your considerations involves how long you intend to stay in your home. If you intend to stay there for only a year or two, most likely you will have too little time for that to occur.
Mortgage Modification
By far, the least expensive method to reduce the rate of your home mortgage is by having your lender modify your existing mortgage. In many cases, the lender charges a nominal amount to adjust your mortgage to reflect a lowering of the rate. The main reason why lenders do that is to keep you from refinancing your mortgage with another lender because he wants to keep it on his books, particularly if your are current.
Barrier to Loan Modification
The primary reason why more mortgages are not refinanced is that the institution that granted you the loan most likely sold it to another institution, even though you continue sending monthly payments to it. In most cases, the lender will make about 1/4 percent of the value of the mortgage to service it. Since that lender no longer owns your mortgage, in most cases it does not have the authority to modify your loan.
Reducing Charges
Assuming your lender holds it mortgages, to stay competitive, it may offer a program that substantially reduces the fees to refinance your mortgage. Your credit history is well known to it since you have been making payments to it on your mortgage, so it is not required to do as much paperwork as if it were a new mortgage loan. Lenders also will charge you a fee at the inception of your loan to automatically reduce the loan when interest is less.
Do Your Homework
When you are faced with the decision to refinancing your mortgage or ask your lender to modify your existing loan, you should thoroughly consider both options. Has your property increased in value? Do you intend to stay in your house for five years, or longer? What is the size of adjustment that your current lender is willing to make? What is the cost of refinancing? These and other questions should be answered before you decide.
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