What are Some Loan Modification Myths?

by tammy on April 11, 2010

In this troubling economy, loan modification agreements are becoming increasingly popular and increasingly necessary each day. There are, however, many myths that surround these agreements that borrowers should be aware of. Being armed with factual information about the process is one of the most important steps borrowers can take in achieving the goal of getting a loan modification and ultimately becoming debt free.

One of the biggest myths surrounding loan modifications is that they are the best option a borrower can get. This is actually not the case at all. Loan modifications are a long and tricky process that require a great deal of work and planning on the part of the borrower; they are also quite difficult to successfully get. For these reasons, loan modifications should be borrowers’ last option, rather than their first. Instead of looking into loan modifications the moment one falls behind on mortgage payments, borrowers should sit down and perform a very careful review of their personal finances and expenses. If there is room to save money anywhere else, including small things like cable television or internet bills, borrowers should be sure to make note of this; cutting all unnecessary expenses can sometimes make the difference between needing and not needing a loan modification. If borrowers can see any feasible way of getting caught up with and staying caught up with their mortgage payments, then they should take advantage of it. Lenders will require borrowers to prove financial hardship in order to qualify for a loan modification, so even if one cannot find a way to opt out of the process, having this information will still be necessary.

Another myth about loan modifications is that receiving one will ruin the borrower’s credit score. This is not the case at all. In fact, a loan modification may actually improve a borrower’s credit rating. Depending on how the lender reports the loan modification to credit bureaus, the agreement change may or may not negatively impact one’s credit report. Even if there is an initial negative impact, borrowers who are able to meet the terms of the agreement, make their payments on time, and eventually be debt free will be able to improve their credit score to the point where it will not matter that they once had financial struggles.

Finally, many borrowers falsely believe that getting a loan modification will lower the total amount they will be required to pay on their mortgage. This is not the case at all; in fact, the opposite is sometimes true as some borrowers will be required to pay more money over a longer period of time. A loan modification can change how often payments are due, when they are due, the amount of the payments, and certain other terms of the original loan agreement, but the amount owed will always be equal to or greater than the original amount agreed upon. Loan modifications are not a “quick fix” or an easy way to pay less money on one’s mortgage. Instead, they are, as the name implies, modifications that allow borrowers to get back on track with their payments without losing their homes.

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