When you are a homeowner and you cannot make your mortgage payment it is important not to panic. Panic can lead homeowners to ignore the situation, which does not stop it from escalating. Panic can also lead homeowners to decline all their available options in the hope that somehow a better option will present itself, which often leaves them with fewer options by the time they take action. Panic can also lead homeowners to take action with little to no actual information, which can lead to less than optimum results.
For instance, many struggling homeowners are under the misconception that a loan modification will lower their payments. In reality, missed payments, taxes, insurance, interest and late fees must be repaid. If you are struggling with your mortgage and you are applying for a loan modification, be aware that your lender will roll the money owed into the loan balance. The loan modification often lowers the interest rate and usually extends the length of the loan. But this does not necessary mean that every loan modification will result in a reduced mortgage payment. For instance, if you had an interest only loan, the lender will convert it to a “principal and interest” loan which will create a higher payment.
Other Interesting Truths About Loan Modifications:
- When borrowers are extremely delinquent, a loan modification can result in a payment increase.
- Most lenders require a borrower to be at least two payments behind before they are eligible to consider a loan modification.
- Borrowers who have not missed a payment may request a forbearance or look into refinancing but will most likely not be eligible for a loan modification.
- A forbearance, as mentioned previously, is a period during which the lender agrees to temporarily postpone payments so the homeowner can get back on their feet financially.
When in negotiations with your lender for a loan modification, homebuyers can request that the lender consider offering them a principal reduction. Some lenders will allow borrowers to take advantage of a principal reduction in order to lower the total amount owed on the loan balance. A global settlement with mortgage lenders that offer qualified borrowers principal reductions was put in place by the U.S. Department of Justice and the state attorneys in 2012. For a homeowner to qualify, they must be a minimum of 60 days past due on their mortgage and their home must be worth less than they owe. The maximum “forgiveness” amount is 30% of the remaining principal balance on the loan. The most well-known modification is the Home Affordable Modification Program, but this program is no longer available so the lenders now offer private modifications for which they determine eligibility.
If you need assistance determining your loan modification eligibility or if you need to talk to an experienced loan modification attorney about your situation, please get in touch with us at Aronow Law PC today. We can help you increase your changes of loan modification approval and handle loan modification negotiations to maximize the benefits for you and your family.