Learning How a Loan Modification Works

A loan modification is often the best option for homeowners struggling to manage their current mortgage payments. The process works by modifying and improving the current terms and/or the interest rates on the existing mortgage. A loan modification is done by negotiating a lower payment with the current lender on the current mortgage contract. This can be done by changing ones mortgage from an adjustable rate mortgage (ARM) to a fixed rate loan, extending the term of the loan, or decreasing the current interest rate to make the monthly payment more affordable. When completed and correctly done, the results are dramatic and highly beneficial to both lenders and borrowers. The homeowner benefits by being able to bring the account current and rolling the past due amount into the back of the loan. The advantage for the bank is that they do not have to worry about selling the home at a discounted price and losing tens of thousands of dollars on their investment. In 2009 the government came out with the Home Affordable Modification Program (HAMP) to help stabilize the housing market. HAMP’s main goal is to help homeowners achieve an affordable loan by lowering their monthly payment to 31 percent of their gross monthly income. In order to qualify for HAMP a borrower must occupy the property as the primary residence; have a first mortgage payment that is greater than 31 percent of the borrowers gross monthly income; have a balance that does not exceed $729, 750; and must be able to prove a financial hardship that is causing mortgage payments to be unaffordable. | Read More