Purpose

Refinancing allows homeowners who are current on their mortgages to negotiate better loan terms and possibly take equity out of their homes. Loan modification is designed to help troubled homeowners avoid foreclosure by restructuring the terms of their mortgages.

Process

When refinancing, you pay off your old mortgage with a new loan through the bank of your choice. With loan modification, you work directly with the lender to renegotiate the terms of your existing mortgage.

Qualifications

Aside from being current on the loan, refinancing requires good credit and some equity in the home. Loan modification is for homeowners who have a demonstrable financial hardship and possibly owe more on their homes than they are worth.

Benefits

Both refinancing and modification allow homeowners to gain more favorable mortgage terms and, in the case of loan modification, possibly avoid foreclosure.

Considerations

Refinancing usually requires that you pay closing costs and other fees. Loan modification programs require that you make three trial payments before your modification is approved, and not everyone will qualify.

Source:

MakingHomeAffordable.gov

FTC.gov: Consumer Information on Mortgage Modification

More Information:

Bankrate: Mortgage Rates

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