If you have a mortgage you’re not completely happy with, you may want to do something to make it better. You have several options, depending on the amount you’ve financed, your interest rate, how much your home is worth, and other factors. To decide which is going to be right for you, though, you’ll want to understand the difference between refinancing and restructuring. That way you’ll make the right decision, and be able to get the financial help you need in order to keep your home. The reasons why you would want to refinance are generally going to be very different from the reasons why you would be interested in restructuring, since one is designed to help homeowners get a better mortgage and the other is designed to help them keep their homes. Here’s what to consider when you’re deciding which is best for your needs.
What is refinancing?
When you refinance a home you get a new loan to pay off the one you have. Generally, you would do that because the new loan has much better terms. The interest rate will be lower, generally by at least one full percentage point, and the terms of the loan may also be better. Some people refinance and cash out their equity, which helps them pay off other debt, travel, go back to school, make improvements on their home, or do something else. Refinancing is usually a voluntary act, in that the homeowner wants to do it to get a better rate, as opposed to being required to make changes because of a dire financial situation that appears to be getting worse.
What is restructuring?
When you restructure your loan, you generally do that because you need a modification, such as with the government’s HAMP program. This program helps borrowers who are in financial trouble get the terms of their loan changed, so that they are able to reduce their payments to a more manageable level. There are several ways this can be done, but the two more common options are extending the term of the loan or reducing the interest rate. Both of those will have the desired effect of making the payments more manageable, but the preferred choice is the lower interest rate. By extending the term the payment is better, but the borrower still has to pay a high rate of interest, and for a longer time. While it can keep a person in their home, it’s not as good of a choice.
Which is the best option for your needs?
The best option for your needs depends on whether you want to lower your interest rate, or whether you basically have to in order to be able to afford your payments and keep your home. For people who see that they could get a better value by refinancing and getting a lower rate, doing so makes sense. For those who are struggling, though, a standard refinance may not be an option. They could owe too much on their home to get a lender to refinance it, or their credit may be damaged from late or missed payments. The only real way to help them is to modify the loan they already have. That way they don’t have to re-qualify for a mortgage, and they will be able to see their payments come down to where they can make them more easily. If you’re in that situation, a restructuring of your mortgage can help you get back on the right track.
What does your credit look like?                                   Â
The better your credit the easier it will be for you to get financed, all other things being equal. If your credit is questionable and you want to refinance your home, you should spend some time improving your credit first. Check for any mistakes on your report, and dispute anything that isn’t accurate. If you can get those things removed from your report, your score may go up enough to make a refinance more realistic. For a restructuring your credit may not be as important, because your lender already knows you’re struggling. If you weren’t having financial trouble, you wouldn’t be asking to restructure your mortgage through HAMP.
Do you like the lender you currently have?
Whether you like the lender you have won’t matter in a restructuring, but it will definitely matter for a refinance. If you aren’t happy with your current lender, you can refinance with a different one and pay off your current loan. That way you’ll have a different lender to work with, along with better terms and a lower rate of interest. If you can’t get a better deal elsewhere, there’s really no reason to try to refinance what you already have, since it will cost you money to refinance but won’t be saving you anything in the long run.
Are you experiencing financial difficulties?
When you refinance your house you need to have your finances in order. Restructuring, though, allows you to be in the midst of financial difficulties and still get the help you need. Whether you have equity in your home or you’re struggling because you owe much more than it’s worth, a mortgage restructure can be just the thing to give you some peace of mind and the opportunity to straighten out your finances so you can move forward with your life again.
2 Point Highlight
The reasons why you would want to refinance are generally going to be very different from the reasons why you would be interested in restructuring, since one is designed to help homeowners get a better mortgage and the other is designed to help them keep their homes.
The best option for your needs depends on whether you want to lower your interest rate, or whether you basically have to in order to be able to afford your payments and keep your home.
