If you’re looking to alter your mortgage payment or you need some form of a loan modification, you’re probably wondering what it is, how it can help, and what this means for your credit and your finances moving forward. One of the common questions I get is will a loan modification lower your payments?
A loan modification is a modification or a change to the original terms of your mortgage. If you’ve had a financial hardship or if you have a high risk of losing your home based on medical bills, job loss, or financial change, your lender may allow you to modify your existing mortgage. The goal is to reduce the monthly payment for a time or permanently in order to keep you in the home until things get better.
There are several different directions for loan modifications.
Principal reduction – This is where your lender will eliminate a portion of the debt allowing you to repay less than you originally borrowed. Your lender will recalculate monthly payments based on a decreased balance. Most lenders are very reluctant to do this so you’re likely to have them alter other features of the loan instead of lowering your principal amount.
Lower interest rate – Your lender may reduce your current interest rate. This can also reduce your monthly mortgage payments and save you money over time. Sometimes these rates are temporary or they can be negotiated to be permanent for the life of the loan or Intel the borrower refinances or sells the property.
Extended terms – This is where your lender will extend how many years you have to pay the loan back. This will lower your monthly interest rate but it will be more costly over time since you be paying more in interest. This option is also referred to as a re-amortization.
Fixed-rate – Your lender may switch you from an adjustable-rate mortgage to a fixed-rate loan in order to keep you in the home and keep the monthly payments the same rather than going up or down based on the interest rates.
Postpone payments – Your lender may allow you to skip a few payments, which is a good temporary solution if you have a job change, job loss, or you have medical expenses that need to be paid first.
What happens if your lender refuses to talk to you about a loan modification? Contact our office today. We handle a lot of different cases with mortgage modification and loan modifications to keep you in your home and keep your payments low.