All housing situations are different, and people face diverse and unique scenarios that can lead to not being able to pay the monthly payments on their mortgage. One option to remedy the situation is requesting a loan modification from your lender. If you are a homeowner beginning to contemplate applying to change the terms of your loan, the first thing that you should know is that there are other options to choose from, aside from a loan modification. Evaluating the pros and cons of a loan modification can always be a big help in the decision-making process.
LOAN MODIFICATION PROS
- Extension of Mortgage Payment Time for A Lower Pay Rate: An extension is one of the easiest and most common ways of loan modification. You will be paying for your home for an extended period, but monthly payments will be reduced. However, you want to be realistic in changing your monthly payment. Be sure that you can pay the new amount so that you don’t have to apply for another modification. Most lenders will be reluctant to modify a loan more than once.
- Lowering the Interest Rate of Your Mortgage: With a lower interest rate, your monthly payments will become more affordable as you find financial stability. Your interest rate can be lowered temporarily or permanently. In most instances, you will eventually have to pay back the interest for whatever time the lender agreed to reduce the interest rate.
- Principal Forbearance: With forbearance, your lender will agree to take a portion of the accumulated debt and add it to the end of the loan. In other words, they will add any past-due amounts to the unpaid principal balance as part of the deal, collecting no interest at the time.
- Principal Reduction: One of the best options is where the lender agrees to lower the principal amount owed and forgives part of the existing debt, so you’ll have more affordable mortgage payments.
- Availability to Pay Other Debts: Mortgage payments are just one expense that homeowners may possess. Other debts may also include credit cards, car loans, student loans, etc. With a mortgage loan modification, you could redirect money to pay those other accumulated debts.
LOAN MODIFICATION CONS
- Damage to your Credit Score: A loan modification could affect your credit score. The credit report can show multiple factors, including a loan modification, but this will depend on how the lender presents the information to the credit bureau. On the other hand, if you’re in the process of a loan modification and miss one of your mortgage payments or any loan payments, this will reflect on the report even if a loan modification is approved.
- You May Still be Under Water on the Property: If your home is worth less than your loan amount or you are underwater with the mortgage than you may opt to do a short sale. In this process your lender or bank will agree to sell your home for less than the amount that is owed on the mortgage. This will have a negative impact on your credit, but can be a better option than foreclosure. Another factor to consider is that you can qualify to buy another home after a short sale sooner if you maintain a good credit score.
- Fees and Expenses of The Loan Modification Process: Some charges can apply when you’re in the process of a loan modification even if you don’t have legal representation. In some cases, your lender can take the charges and add them to the principal owed.
- Tax Consequences: In some instances, when a lender agrees to lower the principal amount of the loan, you may be required to pay the income tax on it. This tax is rare with primary residences as it is more common with investment properties, but it is always good to seek the advice of an accountant.
- Selling the Property or Foreclosure: There’s a possibility that the lender won’t agree to the loan modification and may try to convince you to sell the property, or they can also submit a foreclosure notice as soon as they’re legally capable.
Remember that every situation is unique, and some factors can vary. Consulting with an experienced professional is an excellent option to add clarification to your case. Legal representation can be a good option in the long run if you have a complicated case or if you already owe significant amounts. The lawyer can help you lower your obligation.
Debt Rescue Law is a trusted partner for many borrowers and can provide more information about the loan modification program. Give us a call at (833) 707-1234 today for a FREE consultation to get you clear of your debts and keep your home!
