A loan modification is an opportunity to make changes to a current mortgage. This is different from a refinance, which basically results in replacing a current mortgage with a new one.
What are the benefits of a modification?
A home loan modification can result in a reduction in the monthly payment on your mortgage.
What are the negatives?
In order to reduce the payment, you will likely need to increase the time frame. This means you will pay for the mortgage longer than if you did not get the modification and, when you take interest into account, can mean you pay more for the home overall.
How do I get a loan modification?
The loan provider will likely require you establish a change in circumstances that led to difficulty making payments. This is known as a “hardship” and examples can include unemployment, medical bills, death of a family member, divorce, and disability. The lender will want you to provide a letter with details about the hardship as well as information about your current income, expenses, and other financial documents like paystubs and copies of tax returns.
It is important to note that there are state and federal laws that guide this process. It can help to have a legal professional on your side to better ensure your interests are protected and that you know exactly what the loan provider is proposing before you agree to a modification.
What if the changes are not enough and I still cannot afford my mortgage payments?
There are other legal tools that can help. These could include forbearance. Forbearance is a temporary pause on making payments to your loan. The options vary depending on whether you have a government or private backed mortgage.