Be aware that, depending on how your loan is modified, your mortgage term could be extended, meaning it will take longer to pay off your loan and will cost you more in interest. But for homeowners on the brink of losing their homes, the benefits of a loan modification can far outweigh the potential credit risks and extra interest.
What is a loan modification? How does loan modification work? Who qualifies for a loan modification? Types of loan modification programs. How to get a mortgage loan modification. Know before you modify. On a similar note Although a loan modification may be made for any type of loan, they are most common with secured loans such as mortgages.
A lender may agree to a loan modification during a settlement procedure or in the case of a potential foreclosure. In such situations, the lender has concluded that a loan modification will be less costly to the business than a foreclosure or a charge-off of the debt.
A loan modification agreement is not the same as a forbearance agreement. A forbearance agreement provides short-term relief for a borrower with a temporary financial problem. A loan modification agreement is a long-term solution. A loan modification may involve a reduced interest rate, a longer period to repay, a different type of loan, or any combination of these. There are two sources of professional assistance in negotiating a loan modification:. Federal government assistance also is available to some borrowers.
Mortgage loan modifications are the most common type because of the large sums of money at stake. During the housing foreclosure crisis that took place between and , several government loan modification programs were established for borrowers. Some of those programs have expired but government-sponsored loan modification assistance is still available to some borrowers.
These include:. Some traditional lenders have their own loan modification programs. A mortgage loan modification application will require the details of a borrower's financial information, the mortgage information, and the specifics of the hardship situation. Each program will have its own qualifications and requirements. These are typically based on the amount the borrower owes, the property being used for collateral, and specific features of the collateral property.
If a borrower is approved, the approval will include an offer with new loan modification terms. However, a loan modification is not as damaging as a foreclosure. Natalie Campisi is a Los Angeles-based reporter who covers mortgages and housing news for Forbes Advisor. Previously, she was the senior mortgage reporter and analyst for Bankrate. Select Region.
United States. United Kingdom. Natalie Campisi. Forbes Advisor Staff. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations. Getty Images. What Is a Mortgage Modification?
Who Qualifies for a Loan Modification? How to Modify Your Home Loan There are several ways your mortgage lender can modify your home loan, from reducing your interest rate to making your mortgage longer in order to lower your monthly payments. Reduce the Interest Rate Shaving your interest rate can reduce your monthly mortgage payments by hundreds of dollars. Lengthen the Term Extending the length of your loan is another strategy lenders use to make the monthly payments more affordable.
Switch from an Adjustable-Rate-Mortgage to a Fixed-Rate Mortgage Switching from an adjustable-rate mortgage ARM to a fixed-rate mortgage might not lower your existing payments, but it could help protect you from rising interest rates down the road.
Roll Late Fees Into the Principal If you have accrued past-due charges on things like interest, late fees or escrow, some lenders will add that to your principal balance and reamortize the loan. Reduce the Principal Balance In rare circumstances, lenders will actually lower the amount you owe, also known as a principal modification.
All or Some of the Above Some borrowers might need a combination of actions in order to make the monthly mortgage bill manageable. Was this article helpful? Share your feedback. Send feedback to the editorial team. Rate this Article.
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