You Could Try a Mortgage Rate Modification Instead of a Refinance
Want
to
lower
your
mortgage
rate
without
a
traditional
refinance?
Look
into
a
“mortgage
rate
modification,”
which
does
just
that.
Instead
of
having
to
contact
lenders,
fill
out
applications,
and
provide
stacks
of
paperwork,
you
might
be
able
to
get
payment
relief
by
simply
signing
a
modification
agreement.
Aside
from
it
being
easier
than
a
refinance,
it
could
cut
the
processing
time
down
from
a
month
plus
to
just
a
week
or
so.
That
means
if
you
start
the
process
early
in
the
month,
your
very
next
mortgage
payment
could
be
lower.
While
that
all
sounds
great,
there
are
some
limitations
you
should
be
aware
of,
and
like
a
refinance,
fees
are
typically
charged
as
well.
How
a
Mortgage
Rate
Modification
Works
As
the
name
suggests,
a
mortgage
rate
modification
allows
you
to
lower
the
interest
rate
on
your
existing
home
loan
without
going
through
the
formal
refinance
process.
Instead,
you
are
simply
asked
to
fill
out
a
modification
agreement
with
your
current
loan
information,
including
mortgage
rate
and
loan
product,
along
with
desired
loan
program
and
current
interest
rate.
For
example,
if
you
currently
hold
a
30-year
fixed-rate
mortgage
set
at
7%,
you’d
enter
that
into
the
form
and
then
select
the
type
of
loan
you’d
like
going
forward.
This
could
be
another
30-year
fixed,
or
perhaps
a
15-year
fixed
or
even
an
adjustable-rate
mortgage
if
permitted.
Or
it’s
possible
you
hold
an
ARM
loan
and
want
to
move
into
a
fixed-rate
product
at
the
same
time,
removing
future
rate
adjustment
risk
and
snagging
a
lower
rate
in
one
move.
Typically,
the
lending
institution
would
use
the
current
advertised
mortgage
rate
as
the
new
interest
loan
on
the
loan.
So
if
credit
union
X
is
offering
a
rate
of
5.875%
on
their
rate
sheet
that
day,
you
could
obtain
a
rate
more
than
a
full
percentage
point
lower
using
our
example
from
above.
The
loan
would
then
be
re-amortized
using
the
new
mortgage
rate
and
remaining
loan
term
to
determine
monthly
payments.
While
that
would
result
in
some
nice
monthly
savings,
and
reduce
your
total
interest
expense,
there
is
typically
a
fee.
How
Much
Does
a
Mortgage
Rate
Modification
Cost?
As
noted,
this
type
of
transaction
isn’t
free
of
charge.
You
will
need
to
pay
a
fee,
just
as
you
would
for
a
refinance.
The
banks
aren’t
doing
it
out
of
the
kindness
of
their
hearts.
So
expect
either
a
flat
fee,
such
as
$999,
or
a
percentage
fee
based
on
the
loan
amount.
For
example,
you
might
be
charged
anywhere
from
0.5%
to
1%
of
the
outstanding
loan
balance
in
exchange
for
the
modification.
Doing
the
math,
a
$500,000
modification
could
cost
anywhere
from
$2,500
to
$5,000
to
process.
That’s
not
a
small
number
for
many
households
and
could
in
fact
be
cost-prohibitive,
especially
if
you’re
seeking
payment
relief.
However,
there
are
sometimes
caps
on
the
fee
that
can
be
charged,
so
even
if
they
charge
a
percentage,
it
might
top
out
at
say
$2,000.
Conversely,
there
could
have
a
minimum
fee
as
well,
so
even
if
you
have
a
small
loan
amount,
you
might
be
charged
the
minimum
dollar
amount.
Another
consideration
is
closing
costs
typically
can’t
be
rolled
into
the
loan
amount.
So
you’ll
need
to
come
up
with
the
funds
out-of-pocket
to
get
the
deal
done.
Which
Lenders
Allow
Mortgage
Rate
Modifications?
From
what
I’ve
seen,
mortgage
rate
modifications
are
most
commonly
offered
by
local
credit
unions
and
sometimes
larger
depository
banks.
Both
of
these
types
of
lending
institutions
hold
mortgages
in
their
own
portfolios
(as
opposed
to
selling
them
off),
which
gives
them
more
control
over
the
process.
As
such,
these
types
of
offers
are
less
common
with
direct-to-consumer
mortgage
lenders
and
nonbank
lenders,
which
often
sell
the
loans
they
originate
shortly
after
closing.
In
other
words,
you
might
have
better
luck
getting
approved
for
this
type
of
thing
with
a
credit
union
or
bank.
But
it
doesn’t
hurt
to
ask
regardless.
Try
reaching
out
to
the
loan
servicer
if
the
mortgage
was
sold,
as
the
originator
likely
won’t
be
able
to
extend
an
offer.
Chances
are
they’ll
try
to
guide
you
toward
a
mortgage
refinance
if
they
can’t
or
don’t
offer
a
mortgage
rate
modification.
Mortgage
Rate
Modification
vs.
Mortgage
Refinance
While
both
a
rate
modification
and
a
mortgage
refinance,
namely
a
rate
and
term
refinance,
result
in
a
lower
interest
rate,
there
are
key
differences.
Perhaps
the
biggest
is
that
a
traditional
refinance
tends
to
take
a
lot
longer
and
is
much
more
involved.
It
includes
a
full-on
loan
application,
verification
of
income,
assets,
and
employment,
a
credit
pull,
and
possibly
a
home
appraisal
as
well.
Conversely,
a
rate
modification
might
be
as
easy
as
filling
out
a
form
while
skipping
the
document
collection
and
appraisal.
In
addition,
you
won’t
have
to
worry
about
all
the
closing
costs
associated
with
a
refinance,
including
title
and
escrow
fees,
lender
fees
(other
than
the
modification
fee),
and
so
on.
However,
a
rate
modification
isn’t
available
on
all
types
of
loans,
and
may
be
limited
to
owner-occupied
homes
only.
There’s
also
a
good
chance
you’ll
only
be
able
to
qualify
for
one
rate
modification
per
year,
and
you
might
need
to
make
a
minimum
number
of
payments
before
you’re
eligible.
You’ll
also
need
money
to
complete
the
modification,
whereas
it’s
possible
to
apply
for
a
no
cost
refinance
where
no
money
is
required
out-of-pocket.
Another
limitation
with
rate
modifications
is
you
can’t
pay
discount
points
to
get
an
even
lower
rate.
So
you’ll
just
be
able
to
get
the
market
rate
and
nothing
better,
assuming
you
wanted
to
buy
down
your
rate.
And
lastly,
a
traditional
refinance
may
allow
you
to
skip
a
payment
(or
two),
which
can
be
beneficial
to
those
who
need
some
major
payment
relief.
Mortgage
Rate
Modification
Pros
and
Cons
The
Pros
-
You
can
lower
your
rate
without
refinancing -
Obtain
a
cheaper
monthly
payment
with
the
same
loan
term -
Doesn’t
reset
the
clock
so
you’ll
stay
on
track
paying
down
the
loan -
May
be
able
to
switch
loan
programs
(ARM
to
fixed-rate
loan) -
Doesn’t
require
an
appraisal
or
formal
loan
application -
Process
is
typically
very
fast
and
relatively
easy
(2
weeks
or
less) -
No
closing
costs
other
than
the
modification
fee
(which
varies
by
bank/lender)
The
Cons
-
You
must
pay
a
fee
for
the
modification
(either
flat
fee
or
%
fee) -
Can’t
roll
the
fee
into
the
loan
amount
(must
pay
out-of-pocket) -
Rate
improvement
limited
to
market
rate
at
time
of
application -
May
be
limited
to
owner-occupied
properties
only -
Might
be
limited
to
one
modification
annually -
May
require
a
minimum
number
of
monthly
payments
before
you’re
eligible -
No
cash
out
allowed
Keep
reading:
How
to
lower
your
mortgage
rate
without
refinancing.
creating
this
site,
I
worked
as
an
account
executive
for
a
wholesale
mortgage
lender
in
Los
Angeles.
My
hands-on
experience
in
the
early
2000s
inspired
me
to
begin
writing
about
mortgages
18
years
ago
to
help
prospective
(and
existing)
home
buyers
better
navigate
the
home
loan
process.
Follow
me
on
for
hot
takes.
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