In the past, if a person got behind on their mortgage payments, they had very few options. They basically had four options (1)increase thier income, (2) get another loan with a higher interest rate, (3) refinance their home loan or (4) actually sell the house. Without these approaches, inescapable foreclosure hung over them.
Today, there is a new option that makes all kinds of sense (and cents!). This is what is known as Loan Modification. We’re going to take some time to help you understand just what a loan modification is and how it can help you.
First, if is vitally important that you comprehend precisely what foreclosure is. When we borrow money fromthe financial institution, we are in essence agreeing to a contract in which the bank buys the house for us and we pay the bank an agreed upon amount, with agreed upon interest, until the cost of the home is completely paid. In other words this means that the financial institution actually owns the home.
substantial ammount of equity and you are able to easily make your [spin]house payments each month, the house kind of an asset. However, if you are in a risky loan with difficult payments and a depreciating home, your house is a massive liability.
This is true: your house is only an asset if it is paid off. The best definition and distinction between an asset and a liability may seem to simple,but it will help you understand if your house is an asset or liability to you right now. An asset puts money into your pocket. A liability takes money out of your pocket. Since most people don’t make money off their house, it is a liability and they are paying money out of their pocket every month to the bank. You home is actually an asset to your bank because they own your home and are putting money in their pocket each month from you.
Anyway, let get back to foreclosure. Foreclosure is when the lender decides the borrower is not going to be able to continue to faithfully pay on the loan, probably due to a history of non-payment, and the lender says the loan is in default and that they are going to repossess the home. The bank is able to repossess the house because they are actually the real owners of the home.
With an understanding of foreclosure, we can move on to loan modifications.
Loan Modifications: The What
What is a loan modification? The name gives it away, because it is a modification to your loan agreement. This change can come in a variety of forms, which we will cover momentarily, but it is simply a change to your existing loan agreement.
You need to understand that a loan modification is not an unsecured loan, it is not a HELOC (Home Equity Line of Credit), and it is not a loan refinance.
When you get a loan modification, you stay in the same loan that you already have, but some of the terms of the agreement change. The purpose of a loan modification is to have a lower, more affordable payment on the loan that you already have with a lender. Why would a lender be willing to make these changes to your loan aggreement? We will discuss this in the next section of this article. They are real and they can make a substantial difference in your monthly budget.
Now, as we’ve mentioned, a loan modification changes a term, or terms, of your existing loan. The most common terms that might be able to be changed through a loan modification are:
* Lowering the interest rate.
* Lenghthen the period you have to payback the loan(from 20 years to 30 years)
* Payments you have skipped or missed This is sometime called being underwater with your home.
Remember the goal of loan modification is to change terms so you have a lower monthly payment and can therefore afford the home. Now let’s discuss WHY a lender would even consider modifying your loan by clicking here modify your home loan or here loan modification help.
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