In everyday life, when you refinance, you simply exchange a pre-existing loan with another one in order to get perks like a better term and lower interest rates. However, sometimes, the lender is the one who tells you to refinance.
It is unfortunate, yes, but many people become victims of foreclosure because they cannot keep the pace with their monthly repayments. You’ve signed a contract, and you knew that it was secured on your house; therefore you were always at risk of losing it if you fail to make payments. But not all is lost, even when you’re on the brink of this abyss.
Why Foreclosure Is Bad for Both Parties
Receiving a foreclosure notice is every indebted person’s worst nightmare. The foundation of your world crumbles; you panic and think you’re going to end up on the streets.
In some cases, that is not far from the truth. With all these, not many people are aware of the fact that foreclosure is a “lose-lose” situation. Why? Let’s imagine that the collateral you’ve secured the loan on is your house.
When foreclosure is involved, the bank will try to get some of the money you owe back by selling the house. If there’s not enough equity in it, they’ll get only a part of the debt back.
So – how do banks prevent this from happening? Through a short refinance program meant to help the both of you.
What Is Short Refinance?
To avoid foreclosure, the lender will volunteer to refinance your mortgage. In this case, the financial difference between the two loans is wiped off. Why would he do such a generous thing for you?
Remember: the last person a lender’s doing this for is you. The process of foreclosure is incredibly costly and, as mentioned above, it is actually a financial loss for the lender, by no means a source of profit.
When foreclosure is initiated, you can stop paying your monthly instalments for a period of up to 12 months. That’s disastrous for the lender.
Does A Lender Have No Other Alternatives?
A lender has two other options, and these are not pleasant: a deed instead of a foreclosure or a forbearance agreement. The former can be less profitable than a genuine foreclosure. The latter is just an embargo anyway, so the lender would have to wait for the money.
A short refinance, as you can see, is the way to go for both the lender and the borrower. I think it’s pretty safe to say no one wants to let a bank continue with the foreclosure process. If your lender is empathic enough to present you this option, accept it.
You’ll be paying less interest, you’ll get rid of some of the debt (the difference), and you won’t lose your house. What more could you ask for when you risk living on the streets? Suing the bank won’t do you much help, either, because it’s obviously going to win.
Do Lenders Always Give People This Option?
No. Even if you propose this to them, they can decide against it. This will happen when foreclosure would make more financial sense to them. It’s cruel, that’s true, but banks are known for anything but their kind spirit when it comes to dollars.
All in all, it boils down to the total extent of the debt, as well as to the lender’s ability to understand why you could not stick to the repayment plan and default.
If you’re dealing with a good lender that actually wants to help you, make sure you listen very carefully, because you’re kind of a privileged person. This type of refinancing is handed out only when lenders want to do it.
The mere sound of the word “foreclosure” can cause goosebumps. Once the foreclosure is part of the conversation, you know you’re in some very serious trouble that can impact your entire life.
If you’re in this unfortunate position, ask about this refinancing method as quickly as you get the notice that informs of the foreclosure action. Don’t waste a single moment. If it so happens that the lender is unwilling to do this, ask about the alternatives.
Try to speak as much as possible about the fact that foreclosure would affect the both of you and that he could get his money back through this type of refinancing. For more info and financial help, contact Australian Lending Centre for a free consultation with one of our experts.