Loan Modification/ Mortgage Modification
What is loan modification?
A loan modification is an alteration that is made to an existing loan, by the creditor for the benefit of the debtor. A loan modification is done in the event that the debtor has brought to the attention of the creditor, the fact that he or she is having difficulties in paying off the loan, over time. This usually involves a decrease of the interest rate of the loan, an extension of the time within which the loan should be completely repaid, a different type of loan, or in some cases, a combination of the three. A lender may choose to modify a loan, due to the fact that the cost of a loan modification is much less than the cost of default.
A loan modification is a long-term solution for a debtor who is unable to repay a loan.
When to use a loan modification
A loan modification is not always the best option for you. Therefore, it is necessary to know when it would be beneficial for you to get a loan modification. When should you use a loan modification, to help your debt situation? Here are some possible scenarios:
- If you find that the interest rate on your loan is too much for you to afford each month you may want to consider a loan modification. If you qualify for a loan modification, it will decrease the rate of your interest, per monthly installment.
- Let us say that you are one of those homeowners who has purchased an adjustable rate mortgage. If you are, you may be now noticing that once the interest increase rate adjusts, you may very well not be able to afford your payments for much longer. In this case, a Mortgage modification would suit your circumstance. With a Mortgage modification, you may be able to get out of the adjustable rate mortgage and into a fixed rate agreement. In this way, the loan modification will have helped you to save on your debt.
- In the event that you are about to go through a foreclosure, a Mortgage modification can help you to keep your home. By getting a loan modification, your lender will apply the late charges to the back of the loan and in effect, stop the foreclosure. This gives the debtor a fresh start.
When should you not use a loan modification?
When would it be unwise for you to consider a loan modification?
- Are you unemployed? If you are unemployed, then a loan modification is not for you. A loan modification alters your loan, it does not eliminate it and neither does it reduce it. Due to these facts, if you are unemployed, a loan modification will not be of any help to you.
- If you happen to be looking for a way to reduce your debts, then, a debt modification is not the way to go. A loan modification does not reduce your overall debt, in any way. In many cases, people who choose to get involved in a loan modification end up paying much more than they would have, without it. This is due to the fact that the banks will incorporate the late fees and payments into the principal. For the majority of the time, the debt principal is not reduced and the homeowner ends up paying for an asset that is worth much less than their debt.
Let one of our trained debt consultants evaluate your financial situation to determine if debt negotiation is right for you.
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