Everything you Need to Know About Home Loan Modification
Are you struggling to pay your monthly mortgage installments? Do you fear foreclosure? There is no reason to panic, as you might qualify for a home loan modification. Most individuals mistake this term for refinancing, but both strategies are different.
Loan modification refers to the action of changing the terms of your existing mortgage, whereas refinancing means replacing it with a new mortgage. Nowadays, there is a myriad of companies, such as https://floridahomeownersolutions.com/florida-home-loan-modification/, providing solutions to homeowners who face issues with their properties.
Here is everything you need to know about the modification strategy.
Who is eligible?
Borrowers coping with financial hardship for a variety of reasons might be eligible for a loan modification based on the eligibility criteria of different lenders. For instance, some moneylenders require borrowers to have at least one missed or late mortgage payment to qualify. Nevertheless, they are also curious about the reasons that led to financial hardship to decide if a modification is a feasible solution.
Let us assume you have recently lost your job and have been deprived of your monthly income. In such an unfortunate scenario, making a change to the mortgage terms will not get your job back. Conversely, if you have switched jobs but earn less than before, a change in loan terms might help you pay your installments regularly.
The reasons for no longer being able to afford mortgage payments vary across individuals, but not all of them are accepted by lenders. The usual ones include income loss, divorce, separation, increased housing costs, illness, disability, pandemic, natural disaster, etc. Nevertheless, borrowers should keep in mind that moneylenders will require proof of financial hardship. It is of tremendous importance to discuss your situation with your lender to see if you have a chance of qualifying.
Mortgage lenders provide borrowers with a couple of alternatives for a home loan modification, depending on their financial situation. For example, one of the options is reducing your current interest rate, which results in a reduction of the monthly mortgage installments by as many as hundreds of dollars. Check out some helpful tips for choosing the right mortgage modification strategy.
A mortgage payment of $200,000 with a four percent interest rate is approximately $950 a month. Conversely, the same home loan with a three percent interest rate would cost approximately $840 monthly. This alternative is almost identical to refinancing, but you will not be required to pay any closing fees.
Another viable strategy offered by lenders is the extension of your loan term. By lengthening the term, borrowers are provided with an opportunity to pay more affordable monthly payments. Many individuals whose mortgage terms have ten to fifteen years left decide to extend the terms by ten more years to reduce the monthly installments. Anyhow, such an extension results in paying far more interest during the life of your loan.
Another successful modification strategy is the switch from an adjustable rate to a fixed-rate mortgage. This option is not meant to reduce your current payments but prevents a dramatic increase in interest rates in the long term. The rates of adjustable-rate mortgages tend to change in accordance with the changes in the market. Therefore, by switching to a fixed-rate home loan, you will have your interest rate locked, irrespective of the market changes.
The least practiced strategy by lenders is the reduction of the principal balance. In such unusual circumstances, lenders decide to reduce the sum you owe. This strategy is also known under the name principal modification. It was prevalent in the past, during the housing crisis when the value of homes plummeted. A moneylender can opt for this strategy only after attentively considering the momentary housing market and the sum you owe.
Some lenders decide to combine a few strategies to make the monthly installments of borrowers more manageable. After looking at your situation and requirements, you might get your interest reduced, as well as your loan, extended. Nevertheless, before making any decisions, moneylenders conduct a cost-benefit analysis to see the benefits for both parties.
Check whether you qualify for a home modification.
If so, minimize your worries and start planning!