Millions of people struggle every month to pay their mortgage, often on homes that are now worth less than ever. It’s incredibly frustrating, and if you lose a job or become ill, you may not be able to continue making that hefty monthly payment. Loan modification programs are becoming more common as more homeowners default on properties and banks have to deal with owning abandoned houses. Foreclosing on a house is actually a big expense; they have to maintain the house, advertise it, and handle a sale. In order to avoid having to do all of this extra work, banks and lending institutions are increasingly offering loan modifications programs.
A mortgage loan modification plan is simply a restructuring of your original loan in some way that will reduce either what you owe on your home or reduce the amount of your monthly payments to make it easier for you to pay each month. There are generally three ways a loan can be modified. These are often referred to as “Foreclosure Defense Mortgage Modification” because they are put into place in hopes of preventing a foreclosure:
1. Reduced principle loan modifications reduce the actual price of the home. If you still owe $60,000 on a mortgage, your attorney could negotiate with the lender to reduce the principle so that you will only be responsible for paying back $30,000. With much less money owed over the same time period, you can significantly reduce your budgeted monthly payment.
2. A similar mortgage modification is the reduced interest modification. The goal is the same as with reduced principle – you want to reduce the monthly payments. Reducing the interest by just a percentage point or two can result in significant reduction of the monthly payments needed. If you’re considering either a reduced principle or reduced interest loan modification, it’s a good idea to consult an experienced attorney who can explain the pros and cons of each one.
3. Although less common, an extension of the payment terms is another way to reduce your monthly payments. It’s important to keep in mind that you won’t be paying any less money for your home; you’re simply spreading the payments out over a longer period of time. You might extend your 20 year mortgage to a 30 year mortgage, giving you extra money each month because your payments have been significantly reduced. Keep in mind, however, that you’ll be paying for your home for years longer. Balance your current financial situation against the possibility that you may be retired and still paying on an extended mortgage and decide if it works for you.
There is no template for loan modifications; each home owner can negotiate a reduced payment of some kind if they are having trouble meeting their obligations. An attorney who is experienced in negotiating modifications can point out questions that might not have occurred to you and suggest the best possible mortgage loan modification program for your situation.