A home loan modification is a permanent change to the terms of a borrower's home loan in order to decrease the homeowners monthly payment. That is done either though a reduction of the interest rate, extension of the term loan, elimination of fees, grace period, or a combination of the available options.
Here are some general facts in a nutshell regarding loan modification. This article will try to clarify the myths surrounding home loan modification as we go by.
1. Home loan modification is a process by which your current mortgage is modified, restructured and broken down into easier installments.
2. Loan modification in itself can help homeowners avoid or prevent foreclosure or help people who have defaulted on their loans. It can help ease the burden of paying variable rate or adjustable rate mortgages (ARM) and rend them back to a fixed rate mortgage at a lower interest rate.
Because the process of loan modification has become a popular option for trouble homeowners only recently, there are a lot of myths flying around about loan modification. Here are some popular question and in some cases myths about home loan modification.
1. Myth: Do you have to late on your mortgage payments to apply? No, certainly not. You do not have to be lagging behind on your mortgage to apply for a loan consolidation and modification. If you are not lagging behind you will need to show proof that you will not be able to pay your mortgage in the near future. That can either be due to a job loss, a divorce, a death of a family member, or an unforeseen expense. However, if you are late, it usually speaks in your favor as it tends to show your lender you need help.
2. Myth: Lenders want you foreclose not modify your loan? This is wrong. Lenders want to avoid foreclosures as well for a couple of reason. Firstly, they don't want the hassle of finding a new buyer or putting the house up on auction. Also in the long term it will be more profitable if you keep your home.
3. Myth: Lenders offer principle reductions to homeowners whose balance is in the red? Yes, if the homeowner is trying to have his second mortgage reconsidered for the a modification, the lender might be likely to offer a reduction in the principle loan amount (usually up to 10 cents to a dollar).
4. Myth: Contact the lender to get loan modification: You do not always have to contact the lender or services provider to modify a loan, you should also get in touch with a HUD-approved financial counselor - they offer advice which is usually free of charge.
5. Myth: My credit rating would fall: No, your credit rating will not be affected in most cases. But it largely depends on your lender and/or the type of loan modification you are opting for.
Hopefully this article has shed some light on loan modifications. It is advised that you read more about loan modification or ask an HUD-approved financial counselor to help you understand the finer details of the process.