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
- What is a home equity line of credit?
A home equity line of credit is a type of second mortgage that allows homeowners to borrow money using their home as collateral.
- What is a home equity loan?
Homeowners with equity in their property can take out a home equity loan that uses their home as collateral.
- HSH.com’s annual outlook: 2019 Mortgage and Housing Market Forecasts
At the start of each year, HSH.com details the important factors we think are most likely to influence the mortgage and real estate markets in the coming year. Come each July, we review to see if our expectations are being met or not.
- What is a rate and term refinance?
Homeowners have a variety of reasons for refinancing and each reason can indicate that one refinance option or another makes the most sense.
- Are ten-year fixed-rate mortgages (FRM) available anywhere?
Sure! Virtually all lenders who sell product to Fannie Mae or Freddie Mac will be able to offer you mortgage with a 10-year term. However, interest rates are usually the same as the lender's 15-year offerings.