Home Finance Loan Modification vs Refinancing: Which Is Better For Your Situation?

Loan Modification vs Refinancing: Which Is Better For Your Situation?

A loan modification will help you catch up on missed payments and keep your house from going into foreclosure. A mortgage loan modification may lower your monthly payment, extend or shorten the term of your loan, or reduce your interest rate. You can refinance your loan to lower your monthly mortgage payment and shorten the term. Let’s look at both options to help you decide which is better for you.

Loan Modification

A loan modification is when the terms of the loan are changed. Some changes may include lowering the monthly payment, changing the interest rate, and extending how long it takes to pay off the loan.

If you can’t afford your mortgage payments, you can apply for a loan modification program. With a program, you can still make your mortgage payments if you’ve lost your job or had your hours cut back. In short, it will keep you from going bankrupt.

To qualify for a loan modification, you must have at least $300 in surplus income, or at least 15 percent of your monthly income.


Refinancing, or re-fi, is a way to change the terms of your current mortgage loan or consolidate two loans. It lets you swap your current mortgage for a better one. You can refinance to lower your monthly payments, shorten your loan term, or get cash back. Using a refinance calculator, you can see how much money you will save, and how different scenarios would affect your finances.

If you’re thinking about refinancing, there are many things to consider. It’s not just about interest rates; it’s about how long you plan to live in the home, what you plan to do with the equity, and whether your mortgage payment is more than 31% of your take-home pay.

Refinancing has two big benefits. First, refinancing your home can lower your mortgage payments and other costs. In second place, you can cut your interest rate, which can make monthly payments cheaper. To qualify for a refinance, you need a 43% debt-to-income ratio.

Which Is Better for You?

If you qualify for either option, one way to decide between them is to ask yourself how long you plan to stay in your house. A loan modification is the better option if the answer is three years or less. Within that time frame, refinancing may not make sense due to an increase in interest rates. But if the answer to this question is four years or more, refinancing might be an efficient way to save money over time by reducing the length of the loan and lowering monthly payments.

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