A short refinance is when a lender reduces the principal balance of an outstanding mortgage, and thereby agrees to accept less than the full amount owed. This process allows the homeowner to refinance with a different lender. The difference between the existing mortgage amount and the short refinance amount is typically forgiven by the lender.

There are certain loan-to-value guidelines which must be followed when refinancing. If the loan value is too high compared to the equity in the home, then the refinance may not be possible. By reducing the current loan value, the existing lender makes it possible for the homeowner to refinance with another lender, and thereby allows the homeowner to avoid foreclosure.

Many times lenders will allow a short refinance because when loans are in default, the foreclosure process can be a costly option for the lender. Not only can a foreclosure cause the lender to potentially receive no payments for up to a year, but it can also cost the lender a tremendous amount of money in fees associated with the procedure. A short refinance can prove to be a much more cost effective alternative to foreclosure for a lender. Short sales also reduce the number of documented foreclosures in a neighborhood, which can prevent the deflation of home values, and most importantly it allows borrowers to keep their homes.

If you’re a homeowner thinking about a short refinance, you must be willing to undergo a strict financial review and agree to a complete appraisal out of your property. In order to qualify, you must be past due on your mortgage for legitimate reasons and have very little hope of catching up on your payments.

At S.J. Packman & Associates, before we make any recommendations, our attorneys, certified debt specialists, and paralegals, are trained to ask the right questions to find out about your specific situation. Based on your current income and your financial hardship, we will determine which course of action will work best for you. We do not only offer one path, as there is no one process that can solve everyone’s needs. We will take our time with you and help evaluate what your best course of action should be. Call now and one of our advisors will be there to get you started on your path to financial freedom. There is no obligation to enroll, so don’t delay.