Falling Behind on Payments? Here’s All You Need to Know About Mortgage Loan Modification

If you begin to fall behind on your loan payments, you may face foreclosure. However, your mortgage company may agree to give a mortgage modification plan based on your financial situation. These modified plans may assist you to stay in your home by reducing your monthly payments. If you've been struggling to make your payments or have already missed one, a mortgage modification may be beneficial. Here’s all you need to know!

What Is A Mortgage Loan Modification?
Essentially, it is an agreement between the homeowner and their mortgage broker. Even though it is not the desire of a lender to foreclose on a home, they may be able to modify some components of your mortgage that will greatly assist you with your existing financial problems. However, it could only delay your property's foreclosure. 

Its reliability may also be affected by the situation, as some loan modifications are only temporary while others are permanent. Aside from changes in mortgage interest rates, there is also the potential that your payment schedule will be altered.

In some cases, homeowners whose mortgage balance exceeds their home's current value are the most likely to qualify for a modification. Home flippers and investors are not qualified for this program because the main requirement is an owner-occupied property.

How Does It Work?
The total principal of your existing mortgage will not change with a loan modification. Rather, your mortgage company may agree to reduce your interest rate or extend the terms of your home loan. Any of these approaches could help you lower your mortgage payment each month as well as the total interest rate you pay over time.

Furthermore, modifications can also include shifting from an adjustable-rate mortgage to a fixed-rate loan and incorporating late fees into the principal.

Remember that loan modification is designed to make a mortgage more affordable every month. However, it frequently entails extending the loan term or adding outstanding debts back into the loan, which may increase the total interest paid. On the other hand, refinancing into a new loan typically lowers the monthly payment as well as the overall interest cost.

When You Should Consider A Loan Modification
​If you're struggling to pay your mortgage, a loan modification may be an option. You may be having difficulty making payments if you lost a job and your new one pays less, or if you are dealing with an ailment or other long-term distress. With such dire financial circumstances, it may be difficult or impossible to refinance your mortgage; therefore, a loan modification may be the only way to avoid foreclosure.

However, if you can refinance, that is typically the better option. Similarly, if your financial difficulties are only temporary, don't fool yourself; forbearance (a temporary pause in payments) may be the better option.

Applying For a Loan Modification
​A mortgage loan modification request will necessitate a borrower's financial records, mortgage info, and the specific details of the financial stress situation.

Each program will come with its own set of qualifications and prerequisites. These are generally determined by the amount owed by the borrower, the assets used as collateral, and particular features of the collateral property. If a borrower is approved, they will receive an offer with new loan modification terms.

However, there are some rigidly enforced screenings that you must go through before your request for a mortgage loan modification is approved. If the mortgage office claims that you simply made poor financial decisions that resulted in your current financial difficulties, you will almost certainly be denied. Some of the most common qualified reasons are temporary unemployment, the recent passing of a family member, a medical problem, or permanent disability.

​​You could also consider enrolling in some government-assistance programs which could lessen your burden and may shape a brighter future for your household. Got more questions? Learn more by reaching us at [email protected] or texting us at 503-436-6525.