If you are facing an impending foreclosure, it is possible to stop a foreclosure process by requesting a mortgage loan modification. Knowing that you could possibly manage to keep your home and end up with reduced monthly repayments means you could find a way out of your financial mess sooner than you think.
What is a loan modification?
If you are suffering under financial difficulties and you are struggling to keep up with your repayments, you can request a mortgage loan modification in an attempt to help you catch up any delinquent payments.
Mortgage modification happens when your lender allows modifications to the conditions on your mortgage. These may include reducing your repayment amounts, extending your loan term or lowering your interest rate.
Why would a bank want to accept a loan modification?
Banks do not actually want to foreclose on your home. They make far more profit by charging you interest on the money you borrowed from them than they do by selling your home at a loss. Therefore, it is in their interest to help get you back into a stronger financial situation so you are able to continue repaying your loan.
How does a loan modification stop foreclosure?
By making an arrangement with your lender to modify the terms of your existing mortgage, they will honor the agreement and allow you and your family to stay in your home and work through your financial problems. This means they will avoid any foreclosure proceedings for as long as you keep your newly modified repayments current. A mortgage loan modification is one way of avoiding foreclosure.
How do I apply for a mortgage loan modification?
In the first instance, you should put your proposal to your lender in writing. Your lender’s loss mitigator will want to know what you plan to do to put your financial situation back in order.
You should include information about your current income levels and the amount of your bills and repayments in your letter. You should be honest with them about your plans to either find new employment or find ways to improve your current income levels. Let them know that if they approve your mortgage loan modification and reduce your repayments you will have a much better chance of getting yourself back on track.
Do not be tempted to tell your bank a ‘hard-luck’ story – banks are not in the business of feeling sympathetic. They will want to know that you are working towards a logical, responsible solution to your problem.
Am I eligible for a loan modification?
Before you apply for any type of mortgage loan modification, you should be sure you qualify for this kind of assistance. You should be able to verify that you are experiencing temporary financial hardship or a change in financial circumstances, but you must not have filed for bankruptcy.
Your current repayments should also be at least ninety days in arrears, although you must not have purposely defaulted on your repayments in order to qualify. It is also important that the bank has not already begun foreclosure proceedings before you send in your modification letter.
What is the difference between mortgage refinancing and a mortgage loan modification?
Refinancing your mortgage to a new lender simply means you are moving your mortgage from one bank to another. This does not guarantee you lower repayments or a reduced interest rate.
A loan modification means you stay with your current bank, only the original terms of your mortgage are amended to help you with your financial situation. This means that with a mortgage loan modification your amended conditions are able to take place much sooner and usually with less fees involved.