A Helpful Introduction into Loan Modification.
A Loan Modification is a permanent change to one or more of the terms of a mortgage loan agreed upon by the borrower (you) and lender (bank) which results in lower payments that the borrower can afford. Get Help Now!
Successful Loan modifcations will stop foreclosure proceedings initiated by the lender and help save your credit score. The actual terms that are modified in a loan mod can vary, but typically are:
- Reduction in the Interest Rate on your mortgage:
- Lenders can agree to reduce the rate on your mortgage loan. For example, you have an Adjustable Rate Mortage with a current rate of 8.50%. After modifying your loan, your new rate is dropped to 3.75%. On 30yr mortgage of $250,000, this interest rate reduction could drop your monthly payment $764/mo. This can drastically reduce your mortgage payments and stop foreclosure.
- Longer amortization term of your loan:
- Most conventional loans are for a term of 30 years (360 months). Your loan principal (initial loan amount) is amortized over that term. If the term of the loan is extended to 40 years (480 months), then the same principal amount will be spread over more payment periods. This also can drastically reduced your monthly mortgage payment.
- Reduction of the amount of principal you owe:
- Lenders can agree to reduce the base principal of your mortgage, but this happens less frequently than the modifications listed above. For example, if you took out a mortgage loan on $250,000, the lender will reduce that amount you owe by $20,000. You now only owe $230,000 with the same loan terms.
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