Short Refinance

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.