Are you falling behind on your monthly mortgage payments, placing you at the risk of losing out on the property? No need to feel anxious as you have the facility of applying for a loan modification, providing you with a revised plan to fulfill your mortgage payments. Here are some of the critical aspects of this plan for your convenience.
Loan Modification?
A mortgage loan modification is basically a facility of revising your original mortgage terms. It can also encompass readjusting the interest rate or amending the length of the contract term signed between the lender and the borrower. This flexibility of loan modification is often confused with the aspect of Refinancing; however, they are entirely different concepts. Refinancing translates into substituting your mortgage contract with an entirely new one, contrary to the modification where you are merely revising the conditions of the loan agreement.
Loan modification can work favorably for both the parties involved in the deal. It can pose as a lifesaver for the borrower who is failing to stay true to his monthly mortgage payments. For the lender, it would mean ensuring a successful mortgage return without resorting to expensive foreclosure of the property.
Eligibility Criteria
Loan modification comes with its own criteria, meaning that not every homeowner on the brink of mortgage default is directly considered entitled to such a facility. Normally the owners that have reneged their mortgage commitments for 60 days or have a high probability of doing so in future are shortlisted. This has to accompany a genuine reason like loss of a source of income, an illness, or any such reason that culminated into the failure to meet the mortgage terms.
Loan Modification Programs
Loan modification schemes don’t have a generic template. It is often the case that the mortgage companies have designed their own plans to facilitate the owners susceptible to failing the terms. There are specific programs offered by the lenders that can allow you to avail the flexibility of the loan modification, even if you haven’t sustained a calamity to show for your failure to abide the mortgage terms.
These programs are not just limited to the lending mortgage companies as there are certain refinancing programs on the federal level that also feature the component of loan revisions.
Applying for the Modification
Just like the loan modification programs, the application process may vary with different lenders. You may have to provide the proof of your financial struggles or present a letter depicting the monetary distress, making you susceptible to violating the terms.
Another important facet of the process is the effective communication between the two parties. Your lender may suggest you a plan if he is aware of your situation, so it is advisable to ensure thorough contact.
Potential downsides
A prominent drawback of availing a loan modification program is the negative credit score, which may detrimentally impact your prospect of acquiring future loans. Moreover, the adjustment would mean that it would take longer to pay off the loan with the interest rates. However, for the threat of losing out your home, these disadvantages lose relevance.
