When mortgage rates drop, homeowners often wonder if they will be able to take advantage of lower rates. In general, lenders require borrowers to refinance into a new home loan in order to change their mortgage rate, requiring an appraisal and closing costs. However, there is another way to lower your mortgage rate without refinancing: a loan modification.
Loan modification to lower mortgage rates
If you are having trouble keeping up with your monthly mortgage payments, you can apply for a loan modification to reduce your interest rate and hence, lower your monthly payments. A lender will review your current mortgage and financial circumstances before deciding to approve or deny you for a modification.
If you are having trouble paying your mortgage, you should contact your mortgage lender immediately to discuss your options and the possibility of a loan modification. You will be required to explain your hardship in writing and will need to provide documentation, including tax returns, pay stubs and other paperwork that reflects your income and assets.
The government's Home Affordable Modification Program (HAMP) has specific guidelines that must be met in order to participate in their program. That said, some lenders have their own modification programs -- known as private or proprietary modifications -- and so are willing to work with you on an individualized basis rather than foreclosing on the property.
Lower mortgage rates for non-distressed homeowners
Some financial institutions, including M&T Bank, for example, have offered to reduce mortgage rates for their customers with a loan modification even when they are not having trouble making payments. At M&T, the program is available only on loans the bank owns and services. Borrowers must be up-to-date on their payments, meet minimum credit score requirements and pay a fee to lower their interest rate. The loan payments are recalculated based on the new interest rate for the remaining years of the loan.
Michele Lerner contributed to this answer
More help from HSH.com
Can we do a "cash-in" refinance?
How do I remove or add a name to a home loan?In general, the only way to remove a name from your mortgage will be to refinance or pay off the debt. This is also true when trying to add names to the mortgage. Lenders will not add nor remove names from such an obligation without the opportunity to ensure that the other borrowers have the ability to pay.
I'm an inexperienced refinancer. What can I expect?Q: I owe 56,000 on my eleven year old variable rate mortgage at 8%.I have good credit, have been in my home for 11 years and want a 15-year fixed-rate mortgage. While I have a good income, I have no cash for closing costs. Do I need to pay points and fees? Do I need an appraisal? What can I expect when I approach the bank for a refinance?A: If your credit is good and you have equity in your home, you should be able to refinance to a 15-year fixed rate. Lenders will require an appraisal of the property, but you should be able to build the cost of refinancing into the loan amount, or might be able to trade it off in exchange for a slightly higher-than-market interest rate. As the bank about your loan options, and expect that you'll need to fully document your income, debts and assets.
I'm trying to refinance a jumbo loan.
Is there a ten year refinance mortgage out there?Almost any lender that offers a fixed-rate mortgage will offer a 10-year mortgage. Mortgage rates for a 10-year mortgage usually aren't any better than the rates offered for a 15-year mortgage. That said, be sure to shop around to find a competitive rate. Getting a fixed-rate mortgage with a term as short as 10 years will save you a lot of money on interest costs.