Loan Modification/ Mortgage Modification
What is loan modification?
A loan modification is an alteration that is made to an existing loan. This is done by the lender for the benefit of the debtor.When the debtor is having trouble paying a loan it is suggested to the lender that a modification maybe needed. This usually involves a decrease of the interest rate on the loan. It provides an extension of the time within which the loan should be completely repaid. 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. This a long-term solution for a debtor who is unable to repay the 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 use. 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.
Will a modification help me?
Let us say that you are one of those homeowners who has purchased an adjustable rate mortgage. You may now be noticing that once the interest increase rate adjusts, you are not be able to afford your payments. 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 mortgage 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 mortgage modification, your lender will apply the late charges to the back of the loan. This in effect will stop the foreclosure. This gives the debtor a fresh start.
When should you not use a loan modification?
A loan modification will provide an alteration to the loaning, allowing lower payments and extending your term. But you a still responsible for the balance of the loan. This loan is not available for the unemployed. If you happen to be looking for a way to reduce your debts, then, a loan 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 more. 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.
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