What Is A Mortgage Modification?
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If you are overwhelmed with your financial obligations and cannot afford to make your mortgage payments any longer you could be a candidate for a mortgage modification.
When a mortgage lender is faced with a non-paying debtor, none of the lender’s traditional options are promising to recoup their investment, that is the money they loaned you.
To initiate foreclosure proceedings in order to repossess your property, is a lengthy and arduous process and does not really pay for the lender, especially if the amount owed on the home is more than the worth of the property. Your lender could also make collection attempts either through the mortgage company or a third party. A standard collection method is through wage garnishment or a bank levy. This, too, is not a quick fix for the lender. The creditor first needs to file a petition with the local court, pay the court fees and then wait until the judge grants the petition. Most creditors will also be reluctant to stop taking any further costly action and accept the loss or wait for you to declare bankruptcy and not being paid in the end.
At this point you will have significant leverage to negotiate a so-called mortgage modification with your lender. A loan modification is basically a re-negotiated contract between you and your creditor to lower your monthly mortgage payments. This can be done by either lowering the interest rate – an option that makes the lender less profitable – or by extending the duration of the loan . This option is better for the lender as you would pay more interest on a longer term mortgage. Sometimes the creditor may even be amenable to lowering the mortgage amount. The negotiated term can be permanent or temporary.
Before you start the negotiations, be sure to do your homework and understand what each of the options will cost you in the end taken into account if any mortgage modification will be temporary or permanent.
Mortgage modifications can be very flexible and each lender has different criteria, so it is important to know what you want out of a mortgage modification before sitting down with the lender.
