If you’re having trouble making your mortgage payment and want to avoid the possibility of foreclosure, your lender may accept short-term refinancing. This is similar to a standard refinance, in that you replace your current mortgage with a new one. But the main goal is to help you stay in the house and minimize financial loss for your lender.
What is a short refinance?
A short refinance is a refinance deal that serves a specific purpose: to help you avoid losing your home.
If you default on your mortgage for whatever reason and behind on your loan payments, short-term refinancing is something your lender might consider instead of a short sale or foreclosure. This type of refinance pays off your existing home loan for less than what is owed.
A short refinance is not the same as a refinancing of collection or a traditional refinance loan. You can’t use it to tap into the equity in your home, for example. And a short refinance can be more difficult to obtain than a regular refinance loan because it requires a willing lender.
Credible can help you with all of your refinancing needs and questions – simply plug in some simple information on your current loan and see what lenders have to offer.
How does a short refinance work?
When a lender offers a mortgage to a buyer, they are making an investment. The main risk is that the buyer will not repay the loan later.
In this scenario, the homeowners can pursue a short sale to get out of the mortgage. Or the lender can initiate foreclosure proceedings. In any case, the owner will not be able to keep the house. If a lender wants to help a borrower stay in their home, they can accept short-term refinancing instead.
You can ask your current mortgage lender for a refinance loan that is less than what you owe, or seek short-term refinancing from another lender. Once you are approved for short-term refinancing, your old loan is paid off and you make payments on the new loan in the future.
If you are interested in this type of refinancing, contact the experienced loan officers at Credible can help you get answers to your quick refinancing questions.
What is the advantage of a short refinance?
Short-term refinancing can benefit you and your lender in a number of ways. As a homeowner, the biggest benefit of short-term refinancing is being able to stay in your home. Beyond that, however, there are some financial benefits, including:
- Reduce the total amount you owe
- Reduce your loan balance, interest rate and monthly payments
1. Reduce the total amount you owe: If you started with a $ 200,000 mortgage and refinance to a $ 150,000 mortgage, that’s $ 50,000 you wouldn’t have to pay off. If mortgage rates have fallen, this could translate into a lower interest rate on the new loan.
2. Reduction of your loan balance, interest rate and monthly payments: It can help make your mortgage more affordable, so you’re less likely to default. Just keep in mind that you may have to pay closing costs for a short-term refinance just like you would with any other refinance loan.
If you don’t know where to start to assess mortgage rates, use a tool like Credible. Credible finds the best refinance rates for you so you can choose the refinancing loan that matches your needs.
How Does Short Refinance Affect Your Credit?
There are some potential downsides to short-term refinancing, especially when it comes to your credit. You can see a negative impact on credit ratingfor example, if your old mortgage is shown as “settled as agreed” rather than “paid in full” on your credit reports. Also, keep in mind that your lender must accept short-term refinancing and even then the approval is not guaranteed.
You will still need to meet the lender’s minimum credit score and income guidelines, which could be difficult if you have a bad credit history. If you don’t know what you can claim, visit Credible to compare mortgage rates from multiple lenders without affecting your credit score.
What are the other foreclosure options?
If a foreclosure is potentially imminent and your lender isn’t open to the idea of short-term refinancing, you may want to consider other options. What you choose depends on if you want to stay at home.
A short sale or deed in lieu of foreclosure, for example, would allow you to be released from your mortgage obligation. A short sale involves selling the house for less than it is worth and a deed in lieu means you return the house to the bank in exchange for a release from the mortgage.
If you want to stay in the house, you can ask your lender for other options, such as a temporary abstention on payments or a loan modification. Withholding periods allow you to take a temporary break in your payments, while a change means the lender accepts new loan terms.
You might also want to consider a regular refinance loan if your credit is still in good condition. If you can refinance at a lower interest rate or for a longer loan term, it could make it easier to manage your mortgage payments. Visit Credible Today To View Mortgage Refinance Rates.