Can I lower my interest rate without refinancing?

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 the borrower to requalify, the house to pass an appraisal and the homeowner to again pay closing costs. However, there can be another way to lower your mortgage rate without refinancing: a loan modification.

Loan modifications for troubled homeowners

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 or servicer immediately to discuss your options and the possibility of a loan modification. You can find their number or their website address on your monthly bill or statement. Of course, tou 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 Flex Modification 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. These are most common when the lender holds the loan in their own investment portfolio.

Loan mods to lower mortgage rates for non-distressed homeowners

Some financial institutions may offer to reduce mortgage rates for their customers with a loan modification even when they are not having trouble making payments. In most cases, the program would be available only on loans the bank owns and services -- typically ARMs, jumbos and other "non-QM" products. In general, a borrower 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.

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