The short refinance application process isn’t much different from the process you undergo when applying for a mortgage.
Short refinancing can be an incredible option to reinstate your loan and avert foreclosure if you’re currently in default on your mortgage payments. Ahead, we’ll dive deeper into short refinancing, explaining what it is, how to get it, and its benefits and downsides.
What Is Short Refinance?
Short refinancing, also known as principal reduction or simply “short pay refinance,” is a type of refinancing where the lender agrees to settle your current mortgage and replace it with a new loan. The new loan is usually lower than the existing outstanding home loan amount.
This will reduce your monthly mortgage payments and prevent a foreclosure. This also means you get to stay in your home for much longer, and your bank or mortgage lender gets to avoid losses associated with the foreclosure.
“How Do I Get a Short Refinance?”
The short refinance application process isn’t much different from the process you undergo when applying for a mortgage.
Generally, when you apply for short refinancing, the lender will ask for several documents, including your most recent W-2s, most recent bank statements, and recent pay stubs. The lender will also check your credit score to make sure you meet the set standards. They may also require an appraisal to ensure they aren’t giving you a loan that’s more than your current home’s value.
Also, since the lender will make a loss by taking a lower amount than your existing outstanding loan, they’ll require you to provide a good reason for defaulting on your monthly mortgage payments.
Advantages of Short Refinancing
The benefits of short refinancing vary from borrower to borrower. That said, here are some of the most significant benefits of short refinancing:
- Lowering your total amount of debt owed: You get to reduce the amount of debt owed by getting a short refinance.
- Lowering your monthly mortgage payments: When your overall amount owed is reduced, it automatically means that your monthly mortgage payments will also be reduced. This also means that the prevailing interest rate also goes down.
- You get to keep your home: This is perhaps the most significant advantage of a short refinance. You get to continue staying in your home and avoid moving out or, even worse, facing homelessness.
Disadvantages of Short Refinancing
The main disadvantage of short refinancing is that your credit rating will take a huge hit, making it quite challenging to get financing on other things. Your mortgage lender or bank also takes a loss since they’ll agree to take a less amount than they originally lent out.
Looking to Buy a Home in St. Louis?
Are you planning to buy a house in St. Louis and looking for a mortgage lender to help finance your home? Contact the Better Rate Mortgage team so we can get started on your home loan application. We offer the best mortgage deals in town and have great refinancing solutions.
