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3 Main Benefits of Mortgage Loan Modification
As the name implies, a mortgage modification is the alteration of an existing home loan. It means a permanent change in one or more terms of a mortgage loan. The modifications can include a reduction in the interest rate or an extension in the time given to pay back the mortgagor. Many people believe that thehome mortgage modification process is not for them since they will have to deal with the bank again--possibly the same bank that has been harassing them for defaulted payments or threatening foreclosure--but it has many advantages that are worth considering.
Say, for example, Mr. John Doe has just taken a cut in pay. After checking his new financial situation, he realizes that he has no way to remain current on his mortgage. Perhaps he has even missed a payment or two and now has late fees and penalties to deal with as well as the monthly mortgage payment itself. He could attempt to sell, but in today's economy that could easily take months and there is every possibility that he will take a loss. Even if he does manage to sell, he is then left needing a place to live. He is in a bad situation. Using a home loan modification, Mr. Doe may be able to lower his monthly payments to a level at which he is safe and comfortable.
The 3 Main Benefits of Home Mortgage Modification
1. Many banks will be willing to work with Mr. Doe to reduce those monthly payments, especially if he has documentation of his reduction in pay and a solid history of payment before that. This is a win-win situation for both him and the bank; he gets to remain in his home, while the bank continues to get something for the property rather than potentially having it sitting empty and earning them nothing.
2. Any late fees or penalties from the original loan should be waived upon completion of the loan modification. This will help Mr. Doe if he is living month to month and does not have the extra cash lying around to deal with them. If he did miss any payments, it is possible to roll them into the loan modification, meaning that, after some amount of time, he will once again be current on the loan.
3. Another advantage, perhaps the most important one, of a home loan modification is that it will allow Mr. Doe to avoid foreclosure. While a bad mark on a credit report for one or two missed mortgage payments will adversely affect a credit score, it is nothing compared to what a foreclosure would do, and a foreclosure remains on a person's credit report for seven years. This means that if he did not get a loan modification and continued to miss mortgage payments, eventually being foreclosed upon, not only could he lose his house, he could find himself in a situation where he could not get a loan for a new house until those seven years had passed.
The home mortgage modification process may look daunting at first glance, but it has many benefits. It allows a person to remain in his or her own home, can allow that person to become current on their loan without the overhead of penalties, and keeps a foreclosure off their credit report. If it becomes impossible to finance your monthly payments, it is a good idea to speak with your lender and consider a Home Mortgage Modification before selling or allowing a property to go into foreclosure.
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