A mortgage modification is otherwise known as a loan modification. Fundamentally, what is involved is that your lender agrees to a change in the terms of your mortgage. The changes made are intended to make it easier for you to meet your repayment obligations and so avoid foreclosure. In many cases, modifying your mortgage repayment terms is the only way for you to avoid losing your home.
Mortgage Modification: What is Involved
Here are some of the changes that can be made when your lender agrees to modify your mortgage:
Interest Rate Modification: It is possible to have your interest rate reduced so that you are paying less each month. The objective is that your monthly payment is no more than 38% of your income. In fact, the government has introduced a program stating this as part of the federal Home Affordability Modification Program (HAMP.)
Balanced Owed: In some cases the lender might reduce the amount that you owe. This is one of the options available to reduce monthly payments under the terms of HAMP. If this is done, the treasury will help the lender with the costs involved.
Extended Loan Period: If you are negotiating a mortgage modification, it will likely be possible to extend your loan period. If you are on 15 years, it could be extended up to 30 years. Your lender may also come to another arrangement with you.
In the final analysis it is to the benefit of neither you nor the lender for the next step to be foreclosure – you lose your home, and the lender also invariably loses out. You should be able to discuss a mutually agreeable mortgage modification that you feel confident of maintaining.
HAMP: Home Affordable Modification Program
Mentioned above, this is a program introduced by the Obama administration in 2009. To qualify, mortgage loans must have originated on or prior to January 2009. It is well worth while asking your mortgage adviser about this, because it can save a fair amount of money, both monthly and over the period of your mortgage.
There are specified qualifying terms, such as the mortgage must be a first lien on an owner-occupied property, you must be under provable financial hardship and all income stated must be provided with documentary proof. Credit records will be accessed to prove your claim.
The HAMP program is intended to help struggling homeowners come to terms with mortgage lenders that will enable them to maintain their monthly repayments. This invariably involves mortgage modification, the bulk of the costs of which the lenders can claim back from the government.
Among the terms of HAMP, lenders must work to bring interest rates down to a level that will reduce monthly payments to no more than 31% of the borrower’s income. A 3-month trial will then be carried out. If the borrower maintains payments, the mortgage modification will be implemented for 5 years at the same reduced interest rate.
If you are having problems maintaining your monthly mortgage payments, then first approach your lender for a mortgage modification. Ask about HAMP and whether or not you qualify. If in doubt, contact a mortgage professional.