What is a loan modification, and how will it help me with my mortgage?
A loan modification occurs when a homeowner enters into an agreement with his or her mortgage loan servicer to change the terms of the mortgage. The goal of a loan modification is to lower monthly mortgage payments to a level that homeowners can better afford, thus decreasing the risk of foreclosure. Typically, loan modification programs are targeted at homeowners whose ability to afford their current mortgage payment has declined, either due to job loss, increased interest rates, decreased home values, or other similar circumstances.
The exact provisions of loan modifications vary among loan servicers. For instance, some programs may reduce your payments and/or interest rate on your loan for a certain period of time. Other programs may make permanent modifications to your loan. Again, different loan servicers may have different loan modification programs, so you’ll need to check with your loan servicer in order to find out the terms of any available loan modification programs, or other programs designed to help you stay in your home.
Under the Homeowner Affordability and Stability Plan, loan modification will lower your monthly mortgage payment to an interest rate that is not more than approximately 31% of your monthly gross income. You will be given a trial period of three months under the new interest rate, and a new monthly payment schedule. If you are successful in making your payments during the trial period, you can enter into a loan modification that lasts five years. After five years, your interest rate will go up again at a rate of no more than 1% per year; however, your interest rate will never be higher than the current market interest rate on the date that you entered into the loan modification agreement with your loan servicer.
Furthermore, if reducing the interest rate on your mortgage loan is not enough to bring your monthly payment below 31% of your gross monthly income, then your loan servicer can use other options to reduce your monthly payments to that level. For instance, your loan servicer could forgive part of the principal balance of your loan, defer part of the balance, to be paid at a later date, and /or extend the repayment period on your loan for up to 40 years.
Other Defaulted Loans and Workouts FAQs
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What are the basic eligibility requirements for a loan modification under the Homeowner Affordability and Stability Plan?
A: You must meet some minimum eligibility requirements in order to qualify for a loan modification under the plan: · … More -
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How long does it take to get a loan modification?
A: The length of time that it takes to get a loan modification depends greatly on how long it takes your mortgage holder to process your loan modification, as … More -
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What do I need to give to my loan servicer if I am requesting a loan modification?
A: You are likely to need the following documents for your loan modification request: · Recent paystubs or … More -
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Will I be ineligible for a loan modification under the Homeowner Affordability and Stability Plan if I am current in my mortgage payments?
A: No. You may still be eligible for a loan modification under the Homeowner Affordability and Stability Plan if you are current in your mortgage payments, but you are … More -
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Will I be eligible for a loan modification under the Homeowner Affordability and Stability Plan if I am behind in my mortgage payments, but my house is not yet in foreclosure?
A: As long as you are otherwise eligible under the basic requirements discussed above, you have missed two or more mortgage payments, and your loan servicer is … More -
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What's the difference between loan modification and debt settlement?
A: Debt settlement typically involves working with a professional debt settlement company to negotiate with the creditors to whom you owe debts. Your creditor may, … More -
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What is deed-in-lieu of foreclosure?
A: A Deed in Lieu of foreclosure (DIL) is a disposition option in which a mortgagor voluntarily deeds collateral property in exchange for a release from all obligations … More -
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I owe more than my property is worth. Do I still qualify to refinance under the Making Home Affordable Program?
A: You may still be able to refinance your home under the Making Home Affordable Plan even if you owe more than your property is worth. Eligible loans will include … More -
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Who is eligible for a loan modification under the Home Affordable Modification Program?
A: To apply for a Home Affordable Modification, you must: • Be an owner-occupant in a one to four unit property; • Have an unpaid principal balance that is … More -
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What options does a creditor have after a borrower defaults?
A: There are a variety of legal mechanisms by which a creditor can assert the legal right to recover an unpaid debt. LawInfo Lead Counsel qualified real … More
