Home Loan Modification

By: EconomyWatch Content   Date: 28 December 2009

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As the name signifies, mortgage or home loan modification is a technique of modifying the terms of the loan. The underlying purpose is to enable the homebuyer to pay off the loan without struggling to do so. Homebuyers who cannot afford to get refinancing can opt for home loan modification to prevent their property from being foreclosed. Mortgage modification actually involves preventing borrowers from facing financial troubles in settling their monthly payments.

Not every homebuyer can qualify for home loan modification. Homebuyers who are going through certain personal hardships are eligible for it. These personal hardships could be:

·        Loss of job

·        Divorce

·        Military active duty

·        Business failure

·        Unpaid expensive medical bills

·        Loss of or reduction in income

·        Relocation because of your job

·        Imprisonment

·        Death of your co-borrower or spouse

·        Damage of property due to natural and unnatural disasters

·        Increase in adjustable rate

Home Loan Modification: Process

The process of home loan modification entails an agreement between the borrower and the lender to arrive at new terms. It can take place in the following ways:

If the homebuyer is required to pay more than the value of the home, then s/he can take advantage of home loan modification. The principal can be written down if the borrower agrees to it. The lending institution reduces the principal amount and the borrower should pay off the renegotiated loan. In case of failure to repay the new principal, the borrower will have to face serious consequences.

 

Another way of home loan modification is to reduce the rate of interest, which will ultimately lower the monthly payments. The interest rate can also be converted from variable to a fixed one.

Home loan modification can also take place when monthly payments are suspended for some time by the lender. This also saves the lender from going through the hassles involved in default on home loan or foreclosing.

A borrower may choose to take legal help and/or consult a mortgage broker to ensure that home loan modification proceeds smoothly. However, it is crucial to consider that if you have already missed on too many payments, the application for home loan modification could be denied.


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