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How to Renegotiate a Mortgage: The Ultimate Guide

Can you renegotiate your mortgage to get better terms without refinancing? It’s possible. Banks do renegotiate mortgage contracts in certain situations. However, you need to give your lender a good reason.

Here’s everything you should know and mortgage renegotiations including valid reason lenders accept, the process, and answers to frequently asked questions.

What are valid reasons to renegotiate a mortgage?

When borrowers contact mortgage companies wanting to renegotiate their mortgages, what kind of reasons hold ground?

Financial hardship

If you are having difficulties making your mortgage payments, your lender may be willing to modify your loan so you can stay current. They make money when borrowers keep up with payments for the duration of their loans. Further, the government offers incentives to banks that participate in certain loan modification programs so your lender might even get a kickback for helping you.

For this to work, you’ll usually have to prove you’re having trouble by sharing documents that tell the story of your financial situation. This can include your budget, banking statements, credit card statements, unemployment information, tax returns, etc.

Competitive offers from other lenders

If you can still afford your mortgage no problem but can get a better deal elsewhere, your lender may be willing to renegotiate your contract to save your business. In this case, you need to gather quotes from other lenders to show the rates and terms available to you.

When is the best time to renegotiate your mortgage?

It’s best to contact your lender about renegotiating before you fall behind on payments. You’ll usually want to speak with the department in charge of loss mitigation. Ensure you prepare before you make this call. You need to make a strong case from the beginning.

How to prepare for mortgage negotiations

Once you decide you want to renegotiate your mortgage, follow these steps:

Get help renegotiating your mortgage

When considering a renegotiation, you can get help from a Housing and Urban Development (HUD)-approved housing counseling agency. They will share low-cost or free advice with you about government mortgage aid programs and how to negotiate with a lender.

However, beware of any “help” that requires up-front payment, guarantees they can renegotiate your mortgage, or asks you to sign papers you don’t understand.

Prepare your case

Whenever you enter negotiations, you should always be prepared with what you want and why you think it’s fair to ask for it. Do you want a lower interest rate? A different interest rate type? Or a different loan term? Ensure your request is clear and reasonable.

If you want a lower rate, is it one you can qualify for elsewhere with your current credit and financial profile? If so, bring proof of that.

Additionally, if you are making the request because you are facing financial difficulties, you should prepare documentation to prove it. Remember, in most cases, the company does benefit from keeping you as a customer so you have that in your favor.

Contact your mortgage company

Once you’re prepared, give your lender a call. In most cases, this request will be handled by the loss mitigation department. Explain your case including what you are looking to change, why you want to renegotiate, and what you have to back up your request.

Review offers carefully

If the lender considers renegotiating your loan, they will likely require you to fill out additional paperwork. Then, you will be presented with new terms. Read through the offer carefully to ensure that they meet the conditions you need or want. Plus, look out for any fees and compare the total cost to your current total cost. It’s a good idea to contact a housing counselor again to review the proposal. If all looks good, you can move forward and enjoy your new terms.

Should I refinance my mortgage instead of renegotiating it?

You may wonder if refinancing your mortgage is a better option than renegotiating it, and it may be. Here’s a quick look at the pros and cons:

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • Take advantage of rates and terms that save you money if you qualify.
  • A cash-out refinance can let you liquidate home equity.
Cons
  • Refinancing fees apply which can be thousands of dollars.
  • Qualifying can be difficult (often a 720 credit score is required).
  • Your existing loan may have a prepayment penalty.
  • Lengthy application and approval process.

If you qualify for an offer that helps you to save money overall and/or monthly, refinancing is worth considering.

What is a mortgage recast?

A mortgage recast is an option available on some types of mortgages. It’s a process where you pay a lump sum to reduce your principal amount and recalculate your remaining payments based on a new amortization schedule.

The result is a lower monthly payment and reduced overall interest costs. This can be more beneficial then a refinance because you avoid the fees and credit check, and continue with your original mortgage. However, you do need to have money to invest in the principal.

What if your lender won’t renegotiate your mortgage?

If your lender won’t renegotiate your mortgage or agree to the terms that you need or want, consider refinancing your mortgage. When you refinance, you can potentially get a new home loan with a new lender that replaces your existing loan. Of course, the new loan must offer you benefits over your old loan for this option to make sense. To find out what is available to you, shop around and get a few quotes from other lenders.

Not sure where to start? Browse industry-leading mortgage lenders below, complete with real-user reviews.