Loan Modification
Facts about loan modification
Loan modification is different from the other debt help options like debt consolidation, debt settlement or forbearance. Loan modification is a solution when you are finding it difficult to make payments for mortgage loan due to an unexpected financial hardship.
While loan modification is capable of preventing foreclosure as the existing terms of your mortgage loan are altered to suit your convenience, if you file bankruptcy, you may not be able to save your house. Instead, filing bankruptcy may only defer the process of foreclosure. In other words, bankruptcy puts a temporary “halt” on the foreclosure process.
What is loan modification?
When you request your lender for loan modification and if the lender agrees to change the terms of your mortgage loan, he may help you by lowering the prevailing interest rate, he may also reduce your principal outstanding balance or increase the loan term of your mortgage.
When do you qualify for loan modification?
- In order to qualify for loan modification, you should be willing to retain your home.
- You have to prove that your current financial condition doesn’t allow you to make payments for mortgage.
- The lender has to be convinced that if you are given another opportunity to make repayments, you will not default any further. Your income should be good enough so that you can continue making lower payments every month.
When does a lender qualify?
A lender should accept the loan modification request if after calculations it is found that the loan modification plan will yield good results for him. The cost of foreclosure is quite high and the various lending institutions are readily accepting the loan modification requests.
One of the biggest disadvantages of loan modification is that although it is helping many borrowers to enjoy lower interest rates, it fails to address the “underwater effect”. In underwater effect, there are many homeowners who have negative equity or they owe more than the equity that is available in their homes. Under such circumstances, homeowners have no other alternative but to “walk away” from their homes as there is no point in spending money for a property that has negative equity.
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