Is a Short Refinance Possible for You?

A short refinance is a way to keep a property from going into foreclosure if the homeowner falls behind on their mortgage payments. The lender will offer a short refinance to a borrower because it is more cost-effective for the lender than going through the foreclosure process.

Short refinancing is a much more favorable option if you do have the means to pay a mortgage, but not enough to afford your current one. In a short refinance, the lender pays off your existing mortgage and offers you a new loan with a lower balance than your former mortgage balance so you can avoid foreclosure on your property.

What Does a Short Refinance Do for a Homeowner?

A short refinance will allow the homeowner to stay on their property instead of being evicted, as they would if the property went into foreclosure. A short refinance will lower your credit score because you aren’t paying the full amount that you were on your original mortgage. However, it will not hurt your credit as much as a foreclosure or short sale would.

A short refinance has several significant advantages. It will allow you to

  • Keep your house
  • Reduce your total mortgage payment
  • Lower Your Monthly Mortgage Payments

Will A Lender Offer You a Short Refinance?

The decision of a lender to offer you a short refinance will depend on the individual lender. Most lenders won’t offer a short refinance unless they know you will default otherwise. They will weigh out whether it will be less of a loss for them to grant you a short refinance than it would be to go through foreclosure proceedings.

What Do You Need to Know About a Short Refinance?

A short refinance process can take several months to go through, so if you are struggling to make your mortgage payments and are worried about defaulting on your mortgage, you should take action right away, so you have time to go through it.

When you are looking for a short refinance, make sure you ask your lender what documentation you need for them to consider granting you a short refinance. Having the proper documentation ready before you even begin the process will help make the process go smoother and hopefully faster.

When your lender agrees to a short payoff, they accept less than the homeowner’s mortgage loan amount to satisfy the loan, and you will not have to pay the difference. They will do this to avoid having to pay foreclosure fees and maintenance fees on the property that would otherwise go into foreclosure. They also might agree if the amount of the loan is worth more than the value of the property.

What Are the Differences Between a Short Sale and a Short Refinance?

When you make a short sale, you have to sell your property with a short refinance you can keep your property. While both short sales and short refinances will result in the lender taking less than the full mortgage amount as payment in full, a short sale gets paid through the proceeds from the sale of the house. In contrast, the lender receives a short refinance payment through the homeowner.

A lender would consider a refi after short sale if the homeowner had no assets to pay off the debt. However, they might consider a short refinance if the homeowner did have assets and had demonstrated an ability to pay off their debt.

What Is the Difference Between a Short Refinance and a Mortgage Forbearance?

Both a short refinance or a mortgage forbearance may prevent you from losing your home. The main difference is that a mortgage forbearance is a temporary solution, while a short refinance will be a more permanent solution.

Mortgage forbearance is an agreement made between the homeowner and the lender that allows the homeowner to either pay a lower mortgage payment or pause payments altogether for an agreed-upon time for the homeowner to catch up on their payments. With a mortgage forbearance, the homeowner would have to pay back the payments they missed or the balance they are short over time.

A short refinance, however, will lower your balance and monthly payments permanently. You don’t need to catch up on payments because the investor is giving you a lower payment and takes a lower mortgage balance.

What If a Lender Won’t Offer You a Short Refinance?

If a lender doesn’t offer you a short refinance, ask what options they do have available for you. You also may be able to take advantage of Federal Relief Funds outside of what your lender is offering. However, your lender is most likely only going to use foreclosure as an absolute last resort. If they see you are making a conscious effort to pay your debt off, they will probably be willing to work with you.