Q - The client has a adjustable rate mortgage. They have been offered a loan modification with a fixed rate for three years. However, at the end of the three-year period the rate will begin adjusting again. Can they refinance at the end of the three-year period and shop for a fixed rate or will they have to wait a certain amount of time.
A - There are different ways to modify a mortgage and your lender would not take such a step unless you had demonstrated that the current arrangement will lead to foreclosure - and loss for the lender.
Traditionally, borrowers have been able to refinance, loans at any time. However, in recent years lenders have created stiff prepayment penalties to discourage refinancing during the first few years of the mortgage term. With the brief background in mind, several points stand out.
First, the lender's offer is better than the alternative,foreclosure now and the loss of the home.Even the lender is plainly working in the best interest, in this case it is also taking a step which can be enormously helpful to you. Many lenders are not offering modifications.
Second, you should do everything possible to re-establish credit and bulk-up savings. Three years is not far away.
Third, what is the new interest rate? New Payment? Is there a prepayment penalty during the modification period. If so, how much?
Fourth, if at all possible do not wait three years to refinance. Instead, look for a fixed rate loan, perhaps somrthing insured by the FHA.
Fifth, also look into seling the property and moving to a home with lower monthly costs. If you can do this when not facing foreclosure your negotiating position will be much stronger.
Your lender has given you a window of opportunity. Since the lender does not have to offer a modification you should take advantage of the situation you have.
Best Regards,
Joseph V. Scorese
MAC Investment Company
http://activerain.com/action/referrals/joemacinvest
Toll Free - 877-263-4881
Office - 484-221-9277
Direct - 908-967-4064
Fax - 610-351-0903
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