Typically, if you want a lower interest rate, you have to refinance. Even if you keep your loan with the same lender, they require you to apply for a new loan, pay off the old loan, and start fresh with the new loan with the lower interest rate.
There is one way that you can get away with getting a lower interest rate without refinancing, though. It’s called a loan modification. This isn’t for everyone, though. You have to be able to demonstrate that you are experiencing financial difficulties or hardships. If you can prove it, you may be a good candidate for the loan modification.
What is a Loan Modification?
When a lender agrees to modify a loan, they typically do so because you are facing default. Whether you are already behind or are about to become behind, the lender can modify the terms of the original loan to make the mortgage payments more affordable for you.
Lenders aren’t under any type of obligation to agree to a loan modification. If they do agree to modify your loan, though, they can change the interest rate, term, or even lower the principal balance in an effort to make your loan more affordable.
Lenders are sometimes willing to do this rather than face foreclosure. The last thing that banks want is to take possession of your home. They would rather than you stayed in it, but in order for you to do so, you may need more favorable terms, which is where the loan modification helps.
How to Get a Loan Modification
There are two ways that you can qualify for a loan modification. The first is through the government program ‘Home Affordable Modification Program.’ This program has strict requirements the lender must follow in order to modify your loan. If you meet the parameters, the lender can lower your interest rate to help you avoid foreclosure.
Another way is to use a bank’s private program to modify your program. If your bank owns your loan, in other words, you have a portfolio loan, then the bank is free to do whatever they want with your loan. They may have a program in place that allows them to lower your interest rate without going through the refinance process.
The one common denominator between the programs is the need to show financial distress. You have to show the lender that you cannot afford your monthly payment as it is now. This could be because you lost your job, fell ill, or had unexpected major expenses. Whatever the case may be, you will need to provide plenty of proof of the hardship. The lender needs to see that the hardship is making it difficult to afford your loan and that you will eventually be at risk of foreclosure.
It’s important that you get in touch with your lender right away to discuss your options, though. If you wait until you’ve missed two or three mortgage payments, you could end up facing foreclosure proceedings. Letting the lender know right away that trouble is brewing will allow them to give you more opportunities to save your home.
While it is possible to lower your interest rate without refinancing, it’s generally reserved for homeowners in financial distress. In some very rare cases, you may find that a lender is willing to lower your interest rate, especially if you are about to refinance your loan elsewhere. Oftentimes lenders will take the slight loss of profit in order to keep your business, so it never hurts to ask.Click to See the Latest Mortgage Rates»