Loan Modification Options

Weighing loan modification options

Upon falling behind on your mortgage payments, you will find yourself in very dire situation. When a mortgage falls into arrears, the lender may initiate foreclosure proceedings.


In the past, there were no options available when such a situation arose other than seeking a refinancing option on the mortgage. For those with excellent credit and a strong income, refinancing would be easily to procure.

But, what happens if you were unable to pay your mortgage as a result of financial troubles? If your credit is poor and you have missed several mortgage payments, refinancing would not be an option at all.

This would lead to the only other available scenario: your home would be foreclosed upon. Today, thanks to new loan modification laws, there are new options available and these options can help you save your home.

Loan modification options are not traditional refinancing plans

These options have been devised for those whose backs are up against the proverbial wall and are unable to make payments on their original mortgage agreement. In order to solve the problem, a modification on the original terms can be enacted so that the borrower can effectively repay the loan.

How did loan modification laws come into effect?

Essentially they are a federally subsidized program that was enacted by the Obama administration very early in 2009. The way this program works is rather simple: those that meet certain qualifications can have their home loan modified to make it more affordable to pay.

Since not everyone’s situation is the same, there are different options available to those looking to take advantage of the new program. Here is a brief overview of the common options available to mortgage borrowers:

Lower the amount of the monthly mortgage payment.

Many people that are unable to make their monthly mortgage payments are only unable to do so because their mortgage is slightly out of their range of affordability. By marginally lowering (or even significantly lowering) the monthly mortgage payment can lead to being able to stay on top of the mortgage and make timely payments. This can greatly help forestall the foreclosure of the property.

Extend the life of the mortgage.

This can be considered a similar process to lowering the monthly mortgage amount. By adding five more years to the term of the loan, the monthly premiums will be diluted and lowered. There is also another great benefit to extending the life of the mortgage. Namely, during the multiple years that have been added to the life of the mortgage the borrower may experience a significant improvement in his/her finances. That means the ability to make larger monthly payments and pay off the balance long ahead of schedule is possible.

Reduce the interest rate on the mortgage.

One of the major reasons why people are having trouble paying their mortgages centers on the fact that high interest rates make it very difficult to pay off the mortgage.

High interest rates are often the result of subprime loans. On the surface, many lenders thought subprime loans would turn out to be a cash windfall. This was based upon the notion that low introductory rates could be used to sell people on the loans.

When the introductory rate expired and the high interest rates kicked in, the lenders assumed they would make huge profits. Ultimately, the end result was a higher rate of defaults. By lowering the interest rates, both the borrower and the lender benefit from the process.

Eliminate a portion of the mortgage balance.

While most would like this offer to be extended to them, it is quite rare because the lenders may not be completely willing to forgive a portion of the debt. However, it is not out of the question to achieve this goal with the proper representative handling your negotiations.

Often, those homes that are worth less than what they initially were when the mortgage was first enacted are candidates for such reduction in the mortgage balance. Again, hiring the right representative can lead to procuring this option.

Yes, there are many loan modification options available and those that are dealing with difficulties paying their mortgages are certainly advised to look into the options available under this federal mandate.

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