What type of results can you expect from a loan modification?

Homeowner’s constantly face the question of whether or not a loan modification is right for them. Modification serves to do what it states, assist the borrower to make their home affordable once again.  An attorney steps in to calculate what result would be the most beneficial to the borrower in terms of regulating past and future terms of a loan, all the while taking action before future default or foreclosure occurs.

Loan modifications are individualized to the borrower’s needs and ability to make a mortgage payment. A borrower can expect the following benefits in a loan modification: lower interest rates, extending the loan, deferred principal, and capitalization of arrears.

Reducing the interest rate the most common way for a bank to modify a home loan.  Reductions are flexible and catered completely to the borrower’s needs.  Reductions may simply be temporary to assist the borrower in their financial troubles although a true modification should permanently reduce the interest rate.

Modified loans will extend to 30 or 40 years, with some variance.  For the borrowers with a remaining term of 15 to 20 years, extending the loan term may be the best way to attain a loan modification.  This type of modification can happen without many changes to the borrower’s principal balance or interest rate.  An example of such, is a loan for $210, 000 to be paid in 20 years.  In extending the term to 30 years, the borrower is able to adjust their payments for what may be a much more affordable and manageable plan of payment.

Another type of loan modification is through deferred principal.  Typically, interest rates are deferred and to be paid at a later time.  Typically, a portion of principal balance is paid at a later time.  The deferred principal balance is left owed on a borrowers loan and is paid at the end of the loan.  Deferring payments enables the total monthly payments to decrease with a balloon payment made at a later date.

In many cases, borrowers seek out a loan modification after defaulting on their home loan.  Banks will usually add on past due amounts to the principal balance as part of the modification.  Because most modifications include a reduced interest rate, payments will still usually decrease even with additional principal capitalization.

Loan modification can be a vital tool in saving your home before default or foreclosure. The varying options ensure the ability to modify the loan by varying the term, rate, and payment.

If you are considering a modification or are encountering difficulties in your payments, there are several options available to you. Call us today at (951) 801-5570 for a free analysis of your legal options.


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