If you have defaulted on some recent mortgage payments and are in negative equity, then your lender might have offered you a short refinancing deal. These loans are also sometimes given to people who know that they are going to have problems making their payments in the near future. They can't get a standard refinancing deal because they are in negative equity.
Here, your lender refinances your deal to take into account your negative equity. They reduce your mortgage balance to the current value of your home rather than its original value.
What are the benefits of taking a short refinance deal?
1. You Keep Your Home
If you default on your home loan payments, then you risk losing your home. At some stage, your lender might call in your loan. They might foreclose on your property and sell it to recoup some of their investment. If you can switch to a short refinance mortgage, then you keep your home. You won't have to go into foreclosure. Your lender will refinance your borrowing so that you don't lose your property.
2. You Reduce Debt
Missed mortgage payments put you in a debt cycle. You can't meet your repayment obligations. You build new debt for every payment you miss. It can be hard to get out of this cycle. If you can't pay your monthly loan payment, then you won't have access to cash to pay down your growing debt. Plus, negative equity gives you additional debt. You are paying down a loan for a property that is worth less than you borrowed.
If your lender will give you a short refinance deal, then they might write off your missed payment debts. They also usually write off your negative equity. This eases your financial burden.
3. You Get a More Affordable Loan
If you are struggling to pay your mortgage, then a short refinance could get you better terms. Your mortgage could become more affordable. Your lender factors in your negative equity here when they refinance your deal. So, the amount of money you owe will go down. Your lender will write off the difference if this is more cost-effective for them than foreclosure. If your mortgage borrowing is lower, then your payments will reduce. You get a reset with more affordable terms.
To find out more about how a short refinance switch will work and whether this is the best option to take, then talk to your lender or a mortgage refinancing specialist.
Contact a local service, such as SCORE Mortgage Group, to learn more.
Share20 April 2023
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