This judgment is entirely up to you! There are multifarious advantages and disadvantages to both, and I’d say it really more depends on your current financial situation. With the current credit crisis, its almost impossible to refinance to the interest rate you could get through a loan modification without pristine credit and plenty of equity in the home. Also with a refinance, you have to pay for an appraisal, title fee, and your lenders fees. On the plus side, with a refinance, you can work the fees into the balance on your loan, so, if you have enough equity, you don’t have to come to the table with money. Benefits of refinancing are the ability to achieve a lower interest rate and payment, or possibly pull cash out from the home for a variety of purposes, including home improvement and debt-consolidation.

Good Legal Representation on a Loan Modification almost always costs less than refinancing, and there are a couple of key possible benefits that are driving more homeowners to modify their loans than refinance. With a Loan Modification, guidelines aren’t as strict, namely, you can be late 3 months on your mortgage and still get a very low interest rate. Other possible benefits include having your principle balance reduced (the amount you owe). The greatest advantage and disadvantage of a Loan Modification, unless it is based on the results of a Forensic Audit, is that it is entirely hardship based. Your lender may or may not want to help you stay in your home by lowering your payments depending on your hardship and financial situation. Because it is hardship based, the only payment that will make both you and the lender happy is the one that is low enough that you can comfortably afford. In some cases clients can get interest rates in the 2-3% range.

That being said Loan Modifications are a little trickier. You really only have one shot at modifying your loan, so you want to make sure that you meet the criteria of your lender, e.g. DTI (debt-to-income), etc., and this criteria can change weekly based upon the Investors concerned. A refinance is a little more straight forward, you go to your bank or broker, they look at a rate sheet based upon your LTV and credit history and income, and quote you a rate.

Because lenders are running scared at the moment, with proper leverage you can get much better results through a Modification than through a refinance.