What a refinance does
A refinance pays off your current mortgage with a brand-new loan. People refinance to get a lower rate, change the term, switch from an adjustable to a fixed rate, remove mortgage insurance, or take cash out.
You apply and qualify just as you would for any mortgage. The lender reviews your credit, income, assets and the home's value. You can shop around and choose any lender.
What a loan modification does
A modification changes the terms of the loan you already have. There's no new loan. Your servicer may lower the rate, extend the term, or add missed payments to the balance so your monthly payment becomes more manageable.
Modifications are generally meant for borrowers who are behind on payments, or at risk of falling behind, because of a hardship like a job loss, illness or a big drop in income. Only your current servicer can offer one.
Side by side
- Who you work with: refinance, any lender you choose; modification, your current servicer
- Who it's for: refinance, borrowers who can qualify for a new loan; modification, borrowers facing hardship
- Qualifying: refinance, full review of credit, income and value; modification, review of your hardship and finances
- Costs: refinance, closing costs may apply, depending on the lender; modification, usually few or no fees
- Credit: refinance, a normal new loan; modification, may be noted on your credit
Which to consider
If you're current on your payments and want a better rate or term, a refinance is usually the path. If you're behind, or about to fall behind, contact your servicer about a modification or other help first. Reaching out early often gives you more options.
Be cautious of anyone who charges an upfront fee to arrange a modification. You can contact your servicer directly, and HUD-approved housing counselors can help at no or low cost.
Credit and future refinancing
A refinance is reported like any new mortgage. A modification may be reported on your credit, especially if you missed payments before it. After a modification, many lenders and loan programs ask for a waiting period and a record of on-time payments before you can refinance.
Refinancing with CapCenter
CapCenter offers Conventional, Jumbo, FHA and VA refinances, plus cash-out refinances and fixed-rate home equity loans, all with ZERO Closing Costs (restrictions apply). A loan consultant can look at your situation and tell you whether a refinance makes sense now.
