What Is A Loan Modification? How Does It Work?
When someone wants to alter the terms of their mortgage payments, there are a couple of different options. The two options that are the most prominent are a refinance and a loan modification. Refinance is creating a new loan which absorbs the existing loan. Typically, the new loan would be at least the same principal balance as the prior loan, but it may be more if the borrower wants to get cash out of the refinance. In contrast, a loan modification is essentially the same loan rather than a new one. However, the existing loan will have some alterations to its terms. The alterations in a modification can vary. In some instances, it just involves taking payments that have been missed and re-amortize them into a new loan. In other instances, the interest rate or the principal balance is adjusted.
What Are The Reasons That People Generally Choose A Loan Modification?
People choose loan modifications for a few different reasons. The most prominent reason that an individual would choose a loan modification is because they’ve fallen behind. After someone is several months behind, most lenders will no longer take a single installment. Instead, they will require that all of the back installments be caught up in order for the loan to be treated as current. If a borrower tries to send in just a single installment after a loan has fallen behind, the lender will frequently reject that installment and send it back so that the lender isn’t waiving their right.
If someone has fallen behind on their mortgage, it’s usually with good reason, like having temporarily lost a job or having had a health-related issue. A loan modification creates an avenue where someone can get their loan back up-to-date so that they can resume making installment payments instead of coming up with a significant lump sum of money. As a result of changes in the loan terms, the loan payments that are under a modification are more beneficial than the loan payments before the modification. However, this isn’t always the case; sometimes there is little reduction in the loan payment after the back amount is put back into the loan.
How Do Loan Modifications Stop Foreclosures?
A foreclosure occurs because the loan has fallen behind. If the loan is modified and treated as current, then that would stop the foreclosure proceedings. In some instances, when a lender is processing a request for a loan modification, the lender will temporarily suspend the progress in the foreclosure case.
Who Is Eligible To Get A Loan Modification?
It’s important to be aware that loan modification qualifications are very individualized, as each lender or loan servicer will have their own qualifications. Even if you have multiple loans with the same lender, they may have different qualifications depending on who the loan investor is, and whether it’s a first loan, second loan or an equity line. So, it’s nearly impossible to present any detailed qualifications about who will or will not qualify for a loan modification. With that said, you normally have to have adequate income to be able to support ongoing payments in order to qualify for a loan modification. In addition, there usually has to be some equity in the property.
What Loan Terms Can Be Modified?
There are several different loan terms that could potentially be modified. These include:
- Altering the interest rate (this might be a lower amount or a switch from an adjustable to a fixed percentage);
- Decreasing the principal amount;
- Canceling or reducing late fees;
- Extending the life of the loan.
Perhaps the most common type of loan modification is a change to a mortgage (or home loan). When a homeowner fall behind on the mortgage, they can’t just re-start make their installment payments again unless they catch up the entire amount they have missed. For many homeowners who have fallen 3 or more payments behind, this can be really tough. So the homeowners have to request a modification to get back on track.
Loan modifications are not a simple process. It is highly recommended that individuals facing debt management issues consult a professional.
At Ziegler Law Office, we help consumers with debt problems. Our loan modification lawyer will help you navigate this foreclosure alternative. In addition to loan modification and foreclosure, we can also help you with creditor harassment and other debt management essentials.
Don’t try to tackle these stressful, emotional, challenging issues on your own. Fill out the form to the right to schedule a free consultation. Let us help make your debt more manageable.
For more information on Loan Modification In Florida, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (727) 538-4188 today.
Call Now for a Free Case Evaluation
Clearwater: (727) 538-4188 | Tampa: (813) 225-3111