Can Refinancing Stop Foreclosure?

If you default on your mortgage, the mortgage lender will foreclosure on your property. The bank will enforce its legal right, as a secured creditor, to repossess and sell the property. At foreclosure auction, the lender attempts to recover the money that is owed on the mortgage. Not only can you lose your home, but foreclosure can also severely impact your credit score. As such, avoiding foreclosure is advisable whenever possible. Can refinancing stop foreclosure?

One method that you may consider to avoid foreclosure is refinancing your home. Refinancing is the process of applying for a new mortgage loan to pay off your old mortgage loan. The new loan may have a lower payment amount because you have a longer repayment term. Or you may be able to obtain a lower interest rate. If you are struggling with your current mortgage, theoretically refinancing could potentially help you to stop foreclosure.

While refinancing works under certain circumstances, however, refinancing is often not viable when facing foreclosure.

Can Refinancing Stop Foreclosure?

Too often, too little time makes refinancing an inadequate option to stop foreclosure. If an auction has been scheduled then it is generally too late to refinance. In many cases, it may be still possible to modify your mortgage. But refinancing is not an option late in the foreclosure process.

Also, you generally cannot refinance unless the property is worth more than you owe on it. In other words, if you owe $275,000 but the property is only worth $250,000, then a lender will not refinance your loan. In fact, you must have at least 20% equity to refinance for most properties. For a property worth $250,000, you must owe less than $200,00 to refinance. You usually can borrow only 80% of the value of your house. So unless you have equity, refinancing will not work.

Credit plays a role, too. If your credit is not excellent, you will not obtain a refinancing offer. Refinancing lenders will look upon a former mortgage default as a risk to nonpayment, regardless of a change in your circumstances. If you are in foreclosure, missed mortgage payments have already impacted your credit score. Refinancing may simply not be an option.

Does refinancing stop foreclosure? Yes, in theory. But most people do not qualify for refinancing once they are in foreclosure. There are other options, however, to stop foreclosure, including modification, short sale, and bankruptcy. An experienced foreclosure defense lawyer can help you choose which option is best for you.