Creative Refinance: Loan Rate Reduction Tactics

Refinance loan rate reduction options are available to homeowners through various routes.

Loan Rate Reduction Tactics

Refinancing your current mortgage loan can lower your interest rates when the rates are low. You can also significantly reduce your monthly mortgage payment by extending the term of the loan, creating a nice pocket of savings. You can use these savings in a few different ways:

  • put toward the principal, which will reduce it faster
  • pay off high interest debt, such as credit cards
  • open a savings account or start an emergency fund

You can also liquidate home equity for much bigger projects, such as:

  • home improvement
  • college tuition
  • vacation

This, of course, will add to your principal balance, but at a lower interest rate.

Loan Modification and Rate Reduction

A loan modification and rate reduction may be in order when the borrower has fallen into a temporary situation and not been able to make timely monthly payments. The borrower must prove that the circumstances have changed and that they are eligible for the rate reduction. This will typically require proof of earnings and household income in order to make the payment in a timely manner each month. Leasing room(s) within the house will be sufficient evidence.

When a homeowner wants to stay in their property, but can no longer afford the mortgage payment at its current rate, possibly one that has adjusted upward, a loan modification is a good idea. A refinance of the loan rate can ease the situation and lower the monthly payments to a more manageable amount. When the borrower has not been able to make the mortgage payments for some time, but has come back to a position where they are able to do so once again, a loan modification is a good solution to keeping the home.

A specific type of loan modification for borrowers who are behind on their mortgage payments is available, and it is called a recapitalization agreement. This agreement will take all of the arrears, fees, interest, and accumulated payments and add them to the principal of the loan. It will result in a larger principal amount; however, the loan will become "current" once again.

If unable to make current loan payments, there is another option to refinance the loan rate and get the reduction. You may be able to negotiate with the lender about extending your loan for a longer term, which will modify the payment amount and make it more affordable for you.

Tax Benefits

The tax benefits with a refinance loan give you the opportunity to roll any non-tax deductible items, such as credit cards, into your tax-deductible mortgage, and one with a lower interest rate overall.

An added feature of doing this can place you in a lower tax bracket as well by lowering your tax liability. Always consult a tax advisor to be certain you can qualify for these tax benefits.

For more information on a refinance loan rate, visit