Loan Modifications

by admin on February 6, 2009

The definition of a Loan Modification is “a permanent change in one or more of the term’s of a mortgagor’s loan, allows the loan to be resinstated, and results in a payment the mortgagor can afford”. This is the official definition from the Housing and Urban Development (HUD), you can read more here.

The economy in the US is stagnating and there is talk of an extremely protracted recession. Unemployment is rapdily rising and the jobless are out there seeking work right now.

People who took out home loans during the last few years are now finding it difficult to repay them as they are not making enough money to cover their monthly payment. Consequently, many people are having their homes repossessed and there is not enough hope to go around. Enter Obama’s new Foreclosure Prevention Program. This plan is designed to bring lenders and borrowers together to help modify the terms of the home owners loan to make it more affordable in relation to their income level.

Most residential homeowners want to retain their homes but are unaware of how to go about it. This new plan provides financial incentives for the lenders to come to the table and start negotiating with the borrower.

When you face the prospect of not able to make your scheduled loan payments, that is when you should consider approaching your lender about a loan modification. The purpose is to negotiate with your lender to modify parts of the loan conditions to make the payments something you can afford. The lender may give you a longer tenure or they could lower your effective interest rate. These alterations are designed to ensure that you do not lose your home and it should make your payments more manageable.

A loan modification gives you a new lease of life by recalibrating your loan balance into a new loan with your bank or lender. You will still owe on your mortgage, it’s not like you would be getting something for free. The new amount might be able to be paid over a new time period. You ultimately have to repay the loan in full (the new balance), this point can’t be over emphasized. The other possibility is to decrease the interest rate thereby reducing the current payment and making it easier to meet your monthly mortgage obligation.

It’s important that you are proactive and act quickly regarding your loan terms. If you know you need to modify the loan before hand, do it before something bad happens and you find yourself getting served foreclosure papers. If you wait until right before foreclosure, it might be too late. The modification process itself takes time, take this into consideration as you plan your financial future.

It is important to be informed of the worst case scenarios and try to protect your home from repossession by making full use of whatever financial instruments are available to you. Loan modifications are a critical first step in gettig you back on your feet, be proactive and you can save your house – it’s worth it.

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