Simple difference
| Option | What it means | Often best for |
|---|---|---|
| Refinance | You replace your current mortgage with a new loan. | Homeowners with sufficient credit, equity, and stable income. |
| Loan modification | Your servicer changes terms of your existing loan after a hardship review. | Homeowners struggling because of hardship or missed payments. |
When refinance may fit
- You are current on payments.
- Your credit and income can qualify.
- You have enough equity.
- The new loan saves enough money after closing costs.
- You plan to stay long enough to pass the break-even point.
When modification may fit
- You are behind or at high risk of falling behind.
- You have a documented hardship.
- A refinance is not realistic because of credit, equity, income, or delinquency.
- You need your current servicer to review loss-mitigation options.
Key point: Do not assume the lowest monthly payment is the best option. Compare total cost, credit impact, timeline, approval risk, and what happens if the plan fails.
Questions to ask before deciding
- Am I current or already behind?
- Do I have enough equity to refinance?
- What are the closing costs and break-even months?
- Would modification affect credit reporting?
- What documents does the servicer require?
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