Many events can affect your ability to pay your mortgage, especially in times of economic unrest. Changes in the housing market, losing a job, or even divorce or illness can have a huge impact on your financial situation. Not being able to make payments on your mortgage anymore is a home owner’s worst nightmare, because the time to recover is short, and you will be in danger of losing your home.
If you find yourself in this situation, you should know that you have at least one option to keep your home and continue to pay for your mortgage. This option is called mortgage loan modification, and it might be just what you need in order to avoid having to give up your home.
What is Mortgage Loan Modification and How Does It Work?
A mortgage loan modification involves modifying the terms on your mortgage loan, by your lender. Mortgage loan modification can affect the interest rate, the total loan amount, or the type of mortgage loan. The object is to make your mortgage easier to pay, usually by lowering your monthly payments. If you are late on your mortgage payments, the lender might agree to a loan modification, which will give you the chance to get back on track and allow you to pay the late mortgage payments, and modify the loan in such a way that will make your life easier. Mortgage lenders are not required to agree to a mortgage loan modification, but they will prefer it to foreclosure.
You could try to get refinancing instead, but if you are already late on your monthly payments, this will reflect on your credit score, thus taking refinancing out of the equation. If you decide to go ahead and apply for mortgage loan modification, then you should contact your lender as soon as possible, and complete an application that lists your financial situation.
If you are being offered a mortgage loan modification, make sure that you carefully compare all the terms to your original mortgage loan. The goal here is to make things easier for you financially, not ending up regretting the decision in a few years or even sooner. Take a close look at your remaining loan balance, the interest rate that is offered, the type of interest rate, penalties, fees, and, of course, what your new monthly payment will be.
Benefits of a Mortgage Loan Modification
A mortgage loan modification will save you from losing your home, so it’s in your best interest to receive one from your lender. Lenders are also at an advantage, because they will prefer having someone live in the home and paying mortgage for it, than having to go through foreclosure and having to sell your home. Here are the most essential benefits that a mortgage loan modification has:
- Mortgage Loan Term Extension. By extending you loan’s repayment term, you will be able to reduce your monthly payment significantly. You will probably have to pay more in interest over the life of the loan, but at least it saves you from foreclosure, and it’s an even better alternative if you don’t plan on remaining in that home for a long period of time.
- Interest Rate Reduction. Your lender might agree to reduce your interest rate for a while if that would get you back on your feet financially, and back to making regular mortgage payments. Even if it’s for a short period of time, having to pay a lower interest rate can really help you recover from a financial crisis. Refinancing is the only choice that you have of reducing your interest rate permanently, but it might not be an option at this point.
- Principal Forbearance. Your lender might agree to allow you to pay no interest on part of your mortgage loan, but you will still have to pay the entire principal when your home is sold or refinanced, or when the mortgage loan reaches its due date.
- Principal Reduction. Probably the best way of having your monthly payment reduced, principal reduction means that the lender reduces the principal that you owe, and you won’t have to repay that part of the loan.
Mortgage loan modification can mean the difference between a home owner keeping his house or going into foreclosure. It’s not that simple to qualify for a mortgage loan modification, but, if you do meet the requirements, make sure that you do the proper research and understand how your mortgage loan will be modified. Mortgage loan modification is a great way of helping you recover from financial trouble, and avoid having your home taken from you.