If you’re thinking about changing up your mortgage—great, you’re in the right place! But before you dive in, let’s clear up the confusion between mortgage modification and refinancing. They might sound similar, but they’re totally different beasts. Let’s take a look at both side by side.
Mortgage Modification
| Feature | Mortgage Modification | Refinancing |
|---|---|---|
| What It Is | A rescue plan for your existing mortgage, designed for struggling homeowners needing breathing room. | A brand-new loan replacing your current one, aimed at taking advantage of better rates or terms. |
| How It Works | Negotiates new terms (e.g., lower interest rate, longer term, or changes to principal balance) on your current mortgage. | Requires applying for a new mortgage that pays off the old one, often with new interest rates and terms. |
| Who It’s For | Homeowners facing financial hardship, such as job loss or medical bills, to avoid foreclosure. | Homeowners looking to save money on payments, access equity, or switch from an ARM to a fixed-rate mortgage. |
| Impact on Credit | A mortgage modification will most likely have a 30-100 point hit on your credit score (temporarily) but it will be less harmful than foreclosure. | Minor impact on your credit score from a hard inquiry; can save money long-term if better rates are secured. |
| Closing Costs | Typically, no closing costs, though some lenders may charge fees. | Usually involves closing costs, which should be weighed against potential savings. |
To sum it up
Mortgage modification is your go-to for relief during tough times, while refinancing is about optimizing your mortgage for better terms and rates.
If you’re in a bind and need to lower your payments, modification is the way to go. But if you’re looking to save some cash or improve your loan terms, refinancing might be the smarter choice.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.