Understanding Loan Modification

Many homeowners have heard of loan modification, but are unsure what the term actually means.  The current condition of the housing market has led to a number of foreclosures, and job loss or lost hours have left more and more people struggling to maintain their vehicle, mortgage, or other loan payments.  Loan modification, simply put, refers to a process whereby the terms and conditions of a loan are amended such that payments are lowered to within a manageable range for the borrower. 

There are several ways in which this can be accomplished.  Because there are a variety of loan types, there is no one solution to fit all situations, and any one of the following methods may be employed.  The lender can choose to lower the interest rate, thereby lowering the future monthly payments.  The lender can extend the duration of the loan, for example, making a thirty year loan that had twenty years left, back into a thirty year loan.  In very specific and unusual cases, the principle balance may be lowered.  Sometimes the borrower may not have to remit late fees or missed payments.  Adjustable rate loans may be turned into fixed rate loans, locking in a low interest rate for the remainder of the term.  The lender may even choose to implement more than one of these options.

If you are interested in loan modification, the important thing to remember is that the lender really does not want you to default on your loan.  Especially now, given the economic situation, the collateral against your loan is not as desirable as helping you keep your loan.  This is particularly true in the case of home mortgages.  The costs of maintaining a house until it sells, and the loss associated with lowering the price, make your loan of great value to the lender.  This gives you some leverage, and asking for a loan modification may provide you with the help you need to maintain your loan payments, keep your good credit, and finally have some peace of mind.

published 2 years ago

Courtram

30 points