Short Pay Refinance loans

Another option that is increasing in popularity for homeowners is a Short Pay Refinance loan. While the process is similar to a short sale, the home is not sold but rather the loan  is refinanced with a new bank or lender. So the person gets to keep their home. Find more information on this option below.

How does a short pay refinance help the homeowner?

With a Short-Pay Refinance loan, the mortgage lender or bank will agree to provide the homeowner with help. They will in effect discount the loan balance, and therefore lower monthly payments, if the homeowner is facing a financial hardship. This is is great option as it allows the borrower to not only keep their home, but they will receive lower payments, possibly waive fees, and it will eliminate the “upside down” equity in their homes by reducing the principal balance on their mortgage. All of this is done as the borrower will finance their existing mortgage with a new lender.

Who should apply for this?

This is usually a very good choice for homeowners who still have some type of income and decent credit scores. It is not usually the best option if someone is way over their heads and experiencing an extreme financial hardship. For borrowers who have experienced a decline in the value of their home, and now owe more than it’s worth, a Short-Pay Refinancing may be the best solution. The federal government FHA also supports this program.

Lenders and banks are becoming more willing to provide this option if the interest rate on the borrowers current loan is scheduled to soon increase or if the borrower is experiencing some type of short term financial difficulty. Once again, this is not the best option if the homeowner is way behind on their mortgage or if they have an extreme crisis in their financial situation. Note some government agencies, such as the FHA, have principal reduction programs which can eliminate the need for a short pay refinance loan. Click here to learn more.

 

 

 

How does the Short Pay process work?

Further information on the process is as follows. It is usually a three part process. First, you will need to get an appraisal to determine how much the home is worth. Then negotiations must occur. You can use the services of a professional, broker, or mortgage counselor. The mortgage broker will underwrite you for a new loan at the maximum LTV for that new value and they will issue an approval on your application. The last part of the process is after you have your new home appraisal and the approval from the mortgage broker, you will be able to enter into equity re-negotiations with your bank or lender, or an new lender, for a discount on the current mortgage. And this discount is in effect the short pay refinance loan. As states and local governments roll out foreclosure mediation programs, this is also leading to an increasing number of short sale refinancing from the mediation process.

Why is a short pay refinance an option for lenders?

The bottom line is that banks loss less money. Lenders and banks are more willing to negotiate with borrowers to find some type of solution that will both benefit the lender by reducing their loss, and also help the homeowner keep their home. The foreclosure process is very expensive. Not only does it require large amounts of expensive legal fees, and in addition to those costs the home is usually sold at a substantial loss by the bank.

So not only does a Short Pay Refinancing save the bank or lender money, it also allows the lender to provide the homeowner with mortgage help. It helps the loan servicer avoid a majority of the legal fees and lets the new lender make its the largest loan possible that is based on the fair market value of the home. So it is a win win situation. In addition, as mentioned above, a short pay refinancing also places the borrowers into better positions, and is usually better for them than a standard loan modification. This is the case because it will both lower their principal balance, and also lower their monthly payment. Call your mortgage servicer and ask about this process.