Many people think you can stop foreclosure by refinancing your home. Although this is a possibility, it is not easy to get a bank to agree to refinance your mortgage once you are behind on the payments. However, if you have not yet fallen behind, refinancing could be an option for you.
Lower Your Payment by Refinancing
If you know that your income will be falling, you can start looking for a refinance loan that will give you a lower monthly payment than your current mortgage. By obtaining a new mortgage with a lower interest rate or a longer term, you can often decrease the amount of the mortgage payment you must pay each month and stop foreclosure by avoiding it in the first place.
You can often get a lower interest rate by opting for an adjustable rate mortgage. However, you should try to avoid this type of mortgage if you can. Today’s interest rates are already low, so there is nowhere for your interest rate to adjust but upward. Getting an adjustable rate mortgage may lower your payments for now, but chances are they will go back up again, perhaps even higher than your current mortgage payment. If that happens, you may find yourself right back where you are now, looking for a way to stop foreclosure on your home.
If you have already been paying on your mortgage for a number of years, you may have a bit of equity in your home. By refinancing again for a full 30 years, you will end up with a lower mortgage payment. You will end paying a lot more interest than if you had kept your original mortgage, though. You can offset this by paying extra toward the principal each month whenever you are able, in order to get the new mortgage paid off early and save on the interest cost.
An interest-only loan is another way to lower your mortgage payment. This type of loan is never more than a temporary solution to stop foreclosure on your home. You will not be paying anything on the principal, so the amount you owe on your home will never go down. However, as a temporary measure, the interest-only loan does give you the lowest possible mortgage payment. Most interest-only loans automatically change into regular mortgages after a certain period of time. If you choose this type of mortgage, be sure to have a plan in place to be able to pay the higher payment once the interest-only period is over.