Short Refinance, sometimes referred to as Hardship Refinance, is a potential solution for homeowners who are financially distressed and owe more than their home is worth. While it is not common and not always available, it may help certain borrowers restructure their mortgage and avoid foreclosure under specific circumstances.
This article explains what a Short Refinance is, how it works, who may qualify, and important risks to understand, using clear, compliant language.
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A Short Refinance is a type of refinance where:
- The lender agrees to reduce (forgive) a portion of the mortgage balance
- The borrower refinances the remaining balance into a new loan
- The goal is to create a more affordable loan and prevent foreclosure
It is called “short” because the lender accepts less than the full balance owed.
This option is typically considered only when the borrower is experiencing documented financial hardship.
When Is a Short Refinance Considered?
A Short Refinance may be explored if:
- The homeowner is underwater (loan balance > home value)
- The borrower is at risk of default or foreclosure
- The homeowner can demonstrate financial hardship, such as:
- Loss of income
- Divorce
- Medical expenses
- Death of a household income earner
- The borrower is still able to qualify for a new loan after the balance reduction
Short Refinance programs are not guaranteed, and availability depends on lender/investor guidelines.
→ Read more: 12 Types of Refinance Loans: Which Refinance Loan Is Right for You?
How Does a Short Refinance Work?
While details vary, the general process includes:
- Hardship documentation is submitted to the current lender
- The lender reviews the borrower’s financial situation and property value
- If approved, the lender agrees to forgive part of the balance
- The remaining balance is refinanced into a new loan
- The new loan replaces the old mortgage with more manageable terms
Approval requires both lender consent and borrower qualification.
Short Refinance vs. Loan Modification vs. Short Sale
Option | What It Does | Homeownership |
| Short Refinance | Reduces balance + new loan | You keep the home |
| Loan Modification | Adjusts terms of current loan | You keep the home |
| Short Sale | Sell home for less than owed | You give up the home |
Each option has different credit, tax, and long-term implications.
Eligibility Considerations (General)
Short Refinance eligibility is strict and may include:
- Documented financial hardship
- Proof of negative equity
- Acceptable credit and income to qualify for a new loan
- Property must usually be a primary residence
- Investor approval (Fannie Mae, Freddie Mac, or private investors)
Not all lenders or investors allow Short Refinances.
Pros and Cons of a Short Refinance
Potential Benefits
- May reduce total loan balance
- Helps avoid foreclosure
- Keeps you in your home
- Creates a more sustainable mortgage payment
Important Risks & Considerations
- Not widely available
- Approval is uncertain
- Possible tax implications on forgiven debt
- May impact credit score
- Requires full financial review
Always consult a licensed mortgage professional and tax advisor.
→ Read more: No-Closing-Cost Refinance | Lower Your Rate Without Upfront Costs
Is a Short Refinance Still Available Today?
Short Refinance programs were more common during the housing crisis. Today:
- They are rare but still possible in select cases
- Typically handled on a case-by-case basis
- More common alternatives include:
- Loan modification
- Forbearance
- Traditional refinance (if equity allows)
If you’re facing hardship, Loan Factory helps you explore all possible paths, including whether a Short Refinance may be an option.
Why Choose Loan Factory?
- Best Price Guarantee – If Loan Factory can’t beat a competitor’s official offer, you receive $1,000 (Terms & Conditions apply)
- Zero application or junk fees
- Access to 242+ wholesale lenders for broader solutions
- Local loan advisors experienced with hardship scenarios
- Honest assessment of refinance vs. modification vs. alternatives
- MOSO AI platform for transparent loan analysis
- Trusted leadership from Thuan Nguyen, #1 Loan Officer in the U.S.
We focus on clarity, options, and responsible guidance—not false promises.
Talk to a Loan Advisor About Your Situation
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This content is for informational purposes only and not a commitment to lend. Hardship programs, refinance options, and loan approval depend on credit, income, property value, lender approval, and investor guidelines.
FAQ: Short Refinance (Hardship Refinance)
