Having a tough time making repayments on your vehicle, home or other large commodity? Loan modification may be the answer.
The U.S. Department of Housing and Development defines loan modification as a permanent alternation of your loan’s terms which allows it to be reinstated and results in a payment you can afford. A loan modification is designed to prevent you from going into default, and in some cases, not provide you with a lower interest rate for a specified period of time.
Loan modification is not going to eliminate your arrears. In some cases, you may have the opportunity to spread the arrears not on the new term of your mortgage. In other cases, depending on the lender, you may have to repay the arrears over a shorter period of time. Make sure you understand all the terms of your proposed modification before you sign the final
Who Is Eligible?
In the past, loan modifications were only offered to borrowers who could show a specific need or financial hardship as divorce, loss of job, loss of a spouse, illness, or other similar situations. Those who are having a rough time making their mortgage payments may be eligible for the Home Affordable Modification Program, offered by the federal government.
Something to keep in mind if you are divorced or separated and your spouse is still on the mortgage; rules for loan modification will apply to both independently. This means that if your spouse is unemployed, which will be considered in the decision by the lender, your eligibility may be compromised. Money Tips can give you a better idea as to whether you are likely to qualify.
Advantages of Loan Modification
The biggest advantage, and why lenders are reluctant to offer loan modifications to begin with, is that loans usually result in a substantial reduction in the amount of interest you can expect to pay over the life of the loan. Because most lenders make their profit from interest, it is not a desirable solution. However, instead of the burden of input or default, a loan modification is an interesting alternative.
Another benefit you will see from a change is that you will not pay fees. From the standpoint of consumers, this reason alone makes changes just over refinancing. From the point of view of the lender, however, a loan modification offers less protection against risks, such as the lender can’tcollect a deficiency judgment against you should end up in foreclosure anyway.
Waterfall is the standard formula that uses multiple criteria to determine which loans and borrowers will qualify. Remember that the owner provides financial information – monthly income, monthly expenses, money in the bank, and more, on their registration form, and this is information that is used to determine if the owner is eligible. The lender will use conventional methods of reducing the current mortgage in order to meet a new target mortgage payment.