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Loan Modifications Reamortize, Don’t Affect Fixed Rates

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I just got off the phone with Patty at BB&T Mortgage, who walked through all the options I had with them with regards to my mortgage. She was extremely courteous and explained everything in great detail, great loan officer. The one big bit of advice I learned was that a loan modification isn’t what I thought it was. Loan modifications, at least by BB&T’s definition, are for scenarios in which you want to change the amortization of your loan and thus your payments, they don’t affect the interest rate on fixed loans. I was reading Jonathan’s post about his refinancing/rate reduction experience and somehow managed to get it in my head that he did a loan modification, but he just got a rate reduction from his bank. (It would be nice if BB&T would just ask for $500 and drop the rate!)

We only talked about it briefly but loan modifications are for when you want to change one or more terms on the loan and can only lower your interest rate if you have an adjustable rate mortgage. There are cases where loan interest rates can be modified as well but those are usually for when you can’t make payments, they won’t just drop it just because you ask nicely (too bad). In my situation of having a fixed rate mortgage, a loan modification wouldn’t help me. The only thing I could do is pay a big chunk of principal and have the loan re-amortized.

So option one of a loan modification is out but the rate I was quoted from BB&T for a refi is 4.875% APR on either a 30- or 20-year fixed with closing costs of around $3,100 to $3,200.

The game continues!

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9 Responses to “Loan Modifications Reamortize, Don’t Affect Fixed Rates”

  1. Great job for clearing this up for your readers.

  2. Peter says:

    Thanks for chronicling your adventures in refinance – i’m about to go through the same thing so its good to read someone else’s experience.

  3. jim says:

    So far I only have one response from BB&T, no one else has gotten back to me yet, including LendingTree… I figured it’d be faster than this. :)

  4. Jess says:

    Jim:
    Unfortunately, you are NOT correct. If you have your mortgage with a community bank who holds the loan rather than sells it, the interest rate can be modified for a small fee. For many homeowners this is preferrable to the hassle of refinancing. The mutual savings bank I work for modifies mortgages for current mortgagees for a $500.00 fee at the current market rate plus 0.25%. Therefore, a current customer of my bank can get their mortage interst rate modified from its current level to today’s inteerest rate for a $500.00 fee. No re-appraisal, no application, no verifiaction of income, just a $500.00 check. Too bad more people don’t bank with their local community bank or credit union. These institutions employee people who live and work in your town, spend their salary in your stores and support the local non-profit organizations. We contribute 10% of our net income to 501c3 organizations in our service area. Much better than sending your savings to AIG for a slightly higher rate.

    • jim says:

      Hmmm I guess it just depends on your lender because BB&T said that wasn’t possible. I wish it were so easy, I’d do that in a heartbeat.

      The mortgage I originally had was through a lender in the area, though they sold it to Citi and BB&T afterwards, does that count?

      Thanks!

      • Jess says:

        Yes, that is the whole problem. The question for the lender is: Do you sell your mortgages into the secondary market or do you hold them to maturity. Some lenders sell with servicing retained. If they sell with servicing retained or they sell with servicing relelased, then you can not modify the mortgage. The disclosures you receive when you apply for your mortgages show what percentage the lender sells. We sell less than 1%.

        I absolutely beleive that a major reason for our economic problems is that too many lenders got too aggressive because they could sell their poorly underwritten paper into the secondary market and think they were getting rid of the credit risk. Of course, lax government supervision let them get away with this.

        • jim says:

          I didn’t look and, knowing how I was then, probably wouldn’t have cared. As a 25 year old prospective homeowner, I was thinking only of keeping costs as low as possible (and I had no idea that I could pay $500 and drop the rate just like that had the loan remained with the same lender). Also, I know that I thought rates would only be going higher, that’s why I didn’t go for a 5/1 ARM, and never expected rates would be falling like this.

          I agree that the impetus of our problems was the fact that Fannie and Freddie bought up everything under the sun, though the severity was probably the fault of derivative instruments that relied on those loans. Either way, we’re in the mess now and we still rely on S&P/Moody ratings despite their utter failure and complacency during the runup.

  5. poor boomer says:

    So it will take longer to “kill” your loan.

  6. Anonymous says:

    what does re-amortize mean


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