Once you have a loan modification offer, it is advisable to carefully read and evaluate the terms proposed by your lender. It is important to know what exactly are the ideal terms for a modified loan, especially when it’s a DIY loan modification.
- There is a reduction in the interest rate, or a modification from a floating to a lower fixed rate.
- There is a reduction in the principal balance, meaning the mortgage amount is lowered to the home’s current market value.
- Lengthening of the loan term. Usually it means extending the loan term for up to 30-40 years if needed.
- The monthly mortgage payment is capped to an affordable percentage of the household income.
- There is a reduction in late fees, penalties, attorney fees and other charges that are usually added at the end of the loan, or perhaps waived entirely.
- There is no good faith deposit required. Or the payment is feasible, typically the amount of one to two mortgage payments (but may possibly be negotiated to only half a mortgage payment).
- The bank does not necessitate the home’s equity to be transferred back to them when the market returns to normal.
- The renegotiated terms of the modified loan are permanent for the entire life of the loan.
Understandably, it may seem difficult, even impossible to get your bank or any lender to consent to all the terms stated above. However, any means to reduce the monthly mortgage payment so the family can stay in their home and have all of their options open, is generally the solution aimed for.
There are loan modification organizations and companies that can help struggling homeowners in the modification process. They can handle the phone calls and paperwork on your behalf, and negotiate with your lender for terms that are favorable for you.
By Robert Charlson