Mortgage Or Loan Modification

A Mortgage or Loan Modification is a changing of the original terms of your home mortgage.  If you are having trouble paying your current mortgage payment, a loan modification can lower your monthly payment and enable you to save your home from foreclosure.

What is Mortgage Modification?

Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e. mortgagee and mortgagor)

In a typical loan modification, your lender will reduce your current interest rate, which will lower your monthly mortgage payment.  Your lender may also increase the number of years that you have to payoff off your mortgage, which will also lower your payment.

If you have missed some monthly mortgage payments and have incurred late penalties, a modification may allow you to add (capitalize) these amounts to the new modified mortgage balance.

Therefore, instead of having to pay the missed payments and penalties in a one-time lump sum amount, you can spread the amount over the life of your new modified mortgage.

Bank Modification or Making Home Affordable Modification

You basically have two different alternatives for modifying your home loan.  You can apply for what is called an in-house mortgage modification with your present mortgage lender whether it be a bank, credit union, savings & loan, or other financial institution.

There is no requirement for your present lender to modify your mortgage.  After all, they have you locked into a mortgage contract with a specific interest rate and for a specific period of time.  They would only reduce your interest rate and give you a longer mortgage term if they thought doing that would be financially better for them — instead of foreclosing on your home.

If you have missed some monthly mortgage payments and have incurred late penalties, a modification may allow you to add (capitalize) these amounts to the new modified mortgage balance.

Therefore, instead of having to pay the missed payments and penalties in a one-time lump sum amount, you can spread the amount over the life of your new modified mortgage.

Should I Refinance?

Whether a lender will give you an in-house mortgage modification will depend on many things.  Some of these are:

First of all, you must be having trouble paying your current mortgage payment.  You won’t get a modification if you don’t need one.

Do you have equity in your home?  If you have substantial equity, the bank may want to foreclose to receive the amount you owe them.

Do you have a steady stable income?  If you do not, the lender will think that there is no way you can afford the new modified monthly mortgage payment.

The lender will look at your overall financial situation including credit scores, credit card debt, etc.

Possible Reasons to Finance

To lower interest rate and monthly payment

Refinancing to a lower monthly payment and interest rate is one of the most common reasons for a home mortgage refinance. If prevailing interest rates are lower than yours, it would be a smart idea to see how much you could save by refinancing. There are no-cost and low-cost options that could save you money.

To convert an adjustable rate to a fixed rate

If you’re a first ime buyer and don’t intend to stay in your home for a long time, adjustable rate mortgage loans are an effective way to ease into your mortgage payments. On the other hand, if you will be staying in your home over the long term, you may wantto consider refinancing your mortgage into a long term fixed rate loan.

Eliminate mortgage insurance

If you bought your home with less than 20% down payment, chances are you’re paying private mortgage insurance (pmi). By refinancing your mortgage, you’ll be in a position to eliminate the extra expense if the value of your home has increased to a point where you have at least 20% equity in your home, or a loan-to-value (LTV) of 80% or less.

Buy a buy-to-let mortgage

With home prices and interest rates so low, there’s never been a better time to buy an investment property such as a buy-to-let home as a second property. With this in mind, tap into the equity of your home and use the cash for your down payment.

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