Loan Modification – What You Should Know?
A loan modification is perhaps the best option for homeowners struggling to manage their current loan payment. It is the adjustment and alternation to the original terms agreed upon by the creditor and debtor. This process is meant to reconstruct your current loan term, interest rate or payments.
In some case, some of the principal balance of your existing loan may be forgiven and your loan term can be extended. It provides you with the opportunity to stay in your home and avoid foreclosure as long as you are affordable to make the payments.
We’ve managed to demystify and unfold the facts surrounding loan modification to help you have a better idea of loan modification.
What the types of loan modification are there?
Generally, there are four types of modification:
1.Straight capitalization loan modification
In this type of loan modification, any back interest is added to the current principal, while the new loan balance will be amortized over the pre-defined term and interest rate, making the loan much easier to settle. However, you have to repay more than the original loan. To be qualified, you need to offer solid evidence to prove you can meet the monthly payments.
2.Step rate loan modification
Step rate loan modification seems to be a great idea for you whenever you are in need of money, as it might decrease your currently interest rate up to 3%. Thus, you will be able to leave more free money in your pocket at the end of every month. But notice that step rate loan modification does not extend your loan term, which means your interest rate will rise back a few years later.
3.Loan modification with term extension
This is easy to understand – longer repayment term resulting in lower monthly payment. In this type of loan modification, your loan term will be extended upon your request, then consequently the monthly payment will get smaller than that of the original term.
4.Reduced rate loan modification
Compared to step rate loan modification which can only relief your financial burden temporarily, reduced rate loan modification is more preferable if you want to lower your monthly payment during the entire life of the loan.
How to qualify a loan modification
Don’t get confused or anxious when it comes to qualifying a modification. It may be tricky but not that difficult at all.
You may be eligible to qualify as long as you can verify legitimate financial hardship that tremendously impacts your ability to repay the loan. And you don’t have to wait until you are behind on your payments to negotiate a modification with your lender.
Make sure the property is your principal residence and originated before January 1, 2009; the delinquency or default of the mortgage is foreseeable; your lender must be one participating in the Home Affordable Modification Program (HAMP).
Tips for Choosing Loan Modification Programs
Loan modification programs are perfect for individuals who are facing financial difficulties now and can not afford the monthly payments and interest rates. With so many companies and corporations dealing with loan modification programs, you should pay more attention while choosing loan modification providers.
Here are some tips that may help you obtain quality loan modification programs:
• First of all, choose a credible loan modification provider. The most important thing for getting quality loan modification programs is selecting a credible provider. Only the most professional companies offer the most favorable loan modification services.
• Then you may need a professional lawyer for some guide. Technical lawyers are familiar with loan modification help very much. They will help you to make perfect plans and solve your problems.
• Thirdly, get some suggestions from your loan lender. If your loan lender offers loan modification service, you had better get help from your lender. If your lender does not offer loan modification programs, you can also ask for some useful suggestions and tips.
• The last but not least, never be tempted by some favorable terms and be careful for some possible scams. There are many loan modification scams now and you need to try hard to avoid the scams and find quality help.
For those having problems performing mortgage payments, loan modification may have come across your mind as a plausible solution. Your Plan A is to talk with your lender about your problem and your wish to seek a mortgage mod. Instead of cooperating with the plan, your lender offers Plan B – a temporary loan mod.
Bad news about unemployment. The jobless rate in the United States rose despite all the efforts that had been made. One thing following rising unemployment rate is that an increasing number of home owners find them no longer able to afford the jumbo mortgage loans they took out a few years ago.
As Helen Keller put it, although the world is full of suffering, it is also full of overcoming. In the midst of the crashing of subprime mortgages and decaying of mortgage market in general, a host of home owners in this country are casting about for solutions to keep their houses.
The so-called loan modification goes by more than one name, loan restructuring or loan workout plan. However, when boiled down, it is the collaboration between a lender and a borrower who has difficulty making loan repayments. During the collaboration, the terms and conditions of the original loan will be changed.
With economic in the tank and high unemployment, many homeowners find them can no longer afford a mortgage. There are millions of homeowners trapped in difficult adjustable rate mortgages and many of them have watched the value of their property plummet.