Loan Modification

Those in the process of purchasing a new home are all too familiar with loans through mortgage lenders. However, if you’ve had a mortgage for a while and have fallen on hard times, you may want to know about loan modification options.

Loan modification options are a means by which one or more of the terms of a mortgage loan are permanently changed. This allows the loan to be adapted to enable the borrower to maintain their loan and make payments they can afford.

Some home lending and financial experts consider loan modifications to be a win-win situation. This is particularly true for those in the following situations:

More is owed on the house than it is worth.

Payments are in arrears by more than one month.

Foreclosure is a distinct possibility or the proceedings have already begun.

Better terms and a payment you can afford are possible.

You can avoid foreclosure and possibly damaging your credit.

The bank considers it a great situation because they continue to get paid which allows them to avoid having to take other, costlier alternatives.

It is a fresh start which may be needed.

Banks or lending institutions may consider any of the following loan modification options:

They can extend the length of your term, meaning they can stretch the loan by adding an additional 10 years to the loan. This would cause the payments to be adjusted and should bring them down to a reasonable amount.

They can also lower your interest rate. By reducing the interest rate, you’ll also reduce the payment which could help you catch up as well as afford the new payments.

Another option would be to change the loan from an adjustable rate mortgage to a fixed rate mortgage. This means instead of your payment fluctuating with the national prime rate, you would have one interest rate for the duration of the loan.

They may choose to reduce your loan balance, also called a Short Refinance. This option is used by financial institutions to forgive the difference of principal balance owed above what the home is worth, which enables you to refinance your loan at current rates.

Deed in Lieu of Foreclosure is another loan modification option. With this option the lender chooses to accept the house back on a particular date rather than foreclosing on the house. Some lenders will help homeowners in this situation relocate to a new home by helping with expenses.

Forbearance is the last loan modification option, which may see the lender offering to let the borrower skip one or more payments without penalty, or make partial payments for a specific length of time.

All of the above loan modification options can seem like a miracle for homeowners who have fallen on hard times. After having one of these options applied to their own situation, expect to be able to breathe a sigh of relief. If this a loan modification option sounds like it would help you, talk with your mortgage holder to see what options are available for your situation.