Mortgage loans usually come with a long-term commitment, such as 30 years. It's likely that your financial situation will change during this time -- improving or declining. Depending on your situation, you might consider changing your mortgage loan to either make it more affordable each month, save on interest, pay if off faster or cash out some of the equity you've gained. A mortgage refinance is a completely new loan used to pay off the existing loan; a mortgage restructure only modifies the existing loan.
Many lenders offer mortgage refinance loans. The new loan will pay off the old loan in full and it will be deemed satisfied. You, the borrower, will now be responsible for the terms and conditions of the new loan. People choose to refinance for a variety of reasons, such as getting a lower interest rate or extending the term on the loan. These options help to reduce the monthly mortgage payment each month. Additionally, cash-out refinances work to provide extra money using the equity in your home. The additional funds can be used for home improvements, to pay off other debt or many other reasons.
The process to obtain a refinance loan is very similar to the process you went through with the original mortgage. The exception to the process is that you won't be dealing with a seller. You can refinance through your original lender or a new one. Once you complete the application, it is reviewed by an underwriter. He analyzes your finances based on your credit report and income verification documents. Based on the results, the loan application will be approved or declined. If approved, the lender schedules the closing. Behind the scenes, the refinance lender will pay off the original mortgage lender directly. The original mortgage lender will draft a satisfaction or release of mortgage document, and submit it to be filed on public record with the county where the property is located. The new loan's security instrument also will be filed on public record.
Mortgage restructures -- also known as mortgage modifications -- are provided by your lender or through a government-sponsored program called the Home Affordable Modification Program, or HAMP. Restructuring takes the existing mortgage and changes the terms to make the monthly payments more affordable for you. This is accomplished by lowering the interest rate and/or extending the term. Restructures are primarily designed for homeowners who are struggling financially due to hardship or an unexpected change in their financial situation.
In June 2012, the government amended HAMP to include fewer qualification points. This makes it possible for more people to restructure their mortgages. The basic qualifications are: the mortgage loan origination date is before Jan. 1, 2009, and the total unpaid principal balance is not greater than $729,750 for a single-family residence. The limits are greater for multi-unit properties. Additionally, you must be facing a financial hardship which you will explain through your letter of hardship. If you seek a mortgage restructure through your lender, the requirements might be different.
- Banks.com: Mortgage Refinancing vs. Loan Modification
- Making Home Affordable.gov: Home Affordable Modification Program
- Nolo: Mortgage Modification and Refinancing Under the Making Home Affordable Program
- Zillow: What is a Loan Modification?
- The Federal Reserve Board: A Consumer's Guide to Mortgage Refinancings