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Short Refinances


In the Netherlands, the interest rates of home mortgage loans gradually decrease over the term of the loan, such that the mortgage refinances itself.  If American consumers had that option, they would likely choose it whenever it was available, but we are unlikely to see Dutch style mortgages here anytime soon, because the mortgage refinance market is so lucrative for lenders.  More than 20 percent of mortgage loans in the United States are refinances of existing mortgages, as opposed to new home purchases.  In a mortgage refinance, everyone wins.  The buyer gets lower monthly payments, and perhaps pays less interest overall than if he or she had kept the original loan, and the lender still gets to collect compound interest every month.  In today’s frightening housing market, we are starting to hear talk of short refinances.  If you can get one of these, it may save you from foreclosure, but even if you can’t, you can still avoid foreclosure with the help of a Boca Raton foreclosure defense lawyer.

Are Short Refinances Too Good to Be True?

In the context of residential real estate sales, “short” means that the party with the financial upper hand is accepting a financial loss in order to avoid a bigger loss.  For example, a short sale is when a seller offers a house at a discounted price because the only other option is to surrender the house to the seller’s mortgage lender or to go through the foreclosure process.  In a short refinance, you refinance the house for less than the outstanding payoff amount of your mortgage; this means that the mortgage lender discounts the price.  The lender’s incentive to do this is that you are struggling with your current mortgage, and there is a high risk of you defaulting, and the lender losing a lot of money, if you don’t refinance.

In the aftermath of the 2008 housing market crisis, the FHA offered short refinances, but this program ended in 2016.  Short mortgages are hard to find, but they may be making a comeback as more homeowners are struggling with their mortgages.  If you can get a short refinance, it will make your mortgage payment lower, but the IRS may make you pay taxes on the amount that the lender discounted.

If Not Short Refinances, Then What?

If you cannot find a short refinance, any refinance that you can qualify for will bring you some relief.  If you cannot get a refinance, another option is to negotiate with your mortgage lender to extend the term of your mortgage without refinancing it.  If it is apparent that you will not be able to keep making payments on your house, you can avoid foreclosure by selling your house in a short sale or executing a deed in lieu of foreclosure, where you surrender ownership of your house to the mortgage lender.

Work With a Debt Lawyer About Mortgage Refinances

A South Florida debt lawyer can help you find short refinances and other alternatives to foreclosure.  Contact Nowack & Olson, PLLC in Boca Raton, Florida to discuss your case.



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