Mortgage Loan Modification: How Can You Benefit?

Mortgage Loan Modification-How Can You Benefit- 150x150Many 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.

3 Quick Steps for Negotiating Mortgage Forbearance

3 Quick Steps for Negotiating Mortgage Forbearance- 150x150Money trouble can occur at any time and can make the repayment of a mortgage loan very difficult. Especially during and after an economic recession, the chances of losing your home are much greater. One way in which a borrower can save himself from losing his home is by making an agreement with his lender, in which the lender agrees to not foreclose on the borrower’s mortgage, if the borrower agrees to start making payments that will bring him up to date on his mortgage repayment.

This agreement is called mortgage forbearance and it’s designed to help borrowers who are going through tough financial times. Borrowers can stop making mortgage payments or even postpone them for a period of time, after which they can catch up and resume making regular monthly payments. Mortgage forbearance also allows the borrower to negotiate some of the default amount with their lender.

Is Mortgage Forbearance the Right Option for You?

Mortgage forbearance is a good option for those who experience temporary financial hardships, such as changes in employment, an expensive divorce, a death in the borrower’s family, having to temporarily pay two mortgages due to a job relocation, military service, or being jailed. If you consider that your financial troubles are only temporary and you will be able to recover shortly, then mortgage forbearance is worth taking into account.

If your financial hardship is of a more permanent nature, your lender may still agree to a mortgage forbearance if they consider that you have enough equity in your home and will be able to refinance with another lending institution. Either way, you will need to go through the necessary steps in order to obtain a mortgage forbearance agreement.

Obtaining Mortgage Forbearance

  1. Analyze your financial situation and call your lender. Carefully analyze not only the unexpected decrease in income or increased expenses, but also every source of monthly income and all expenses. Your lender will want to know all these aspects of your financial situation in detail, so researching them thoroughly will help you and your lender both better determine if your financial crisis is temporary or permanent, and how long will it take you to recover. Your income sources may include salaries, child support, financial aid, pension or veteran’s benefits, home rental income and others. Expenses may include loan and rental payments, food, utilities and many others. Having every source of income and expense laid out in front of you can also help you determine where improvements can be made in order to get out of this situation quicker.
  2. Write a hardship letter. After writing down all your sources of income and expenses, and determining that even after making changes, your expenses are still greater than your income, it is time to document your financial situation to your lending institution through a hardship letter. Lenders have great resources for finding out information about your income and expenses, so it’s recommended to be completely honest and provide all of the necessary information in your hardship letter.
  3. Sign the mortgage forbearance agreement. After receiving your hardship letter, if your lender approves your request for mortgage forbearance, the last step is for you to read the agreement and sign it. The lender agrees to not file for foreclosure for the duration of the agreement, and you agree to catch up on your mortgage payments. Mortgage forbearance will not waive the interest that you must pay, or the late fees.

Mortgage forbearance is a great way of getting back on track with your mortgage repayment and avoid losing your home to foreclosure. But before committing yourself to this agreement, make sure that you fully understand what it involves, and that you will be able to recover from your financial hardship in a short time. Also, make sure that the mortgage forbearance is the right choice for your financial needs and not just a tool that will help postpone the inevitable mortgage default.