Desperate times call for desperate measures. If you’re on the brink of a foreclosure because you can’t afford your mortgage, a short refinance just might do the trick.
A short refinance is a short sale + a refinance.
Let’s break that down. A short sale on a house is when the house is being sold for less than the amount the owner currently owns. If that sounds painful, it is. It’s like if you bought a house for $600k, paid off $100k (so now you only owe $500k in principal)...but the market tanked, so your current home is only worth $450k.
Refinancing is when you get a new mortgage to replace your old one, either because you want to get more equity under your belt, want lower payments, or can get a better market interest rate these days. If the market tanked, reducing the home’s value, the good news is that interest rates likely also tanked, meaning you could get a refinance at, say, 3.5%, rather than the previous 4.5% loan.
A short refinance combines both of these: the new refinanced loan is less than what was owed previously (since that wasn’t working out), which means the lender forgives some of the principal.
Lenders giving away free money sounds crazy, right? For lenders who do this, it’s the lesser of two evils. Foreclosing houses takes a lot of extra steps, paperwork, and costs. Rather than jumping through hoops selling the house at a loss, and going through the money, time, and trouble to give the house to a new owner, sometimes a short refi with the same owner is the cheaper, less-hassle option.
Related or Semi-related Video
Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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