Loan Modification – The Details You Need to Know
- March 23, 2020
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As the world economy continues to struggle to improve, some homeowners are finding that they are being “sold” a home loan that is more than their home is worth. While most states require a lender to disclose important information about any loan modification or other loan modifications, few provide any transparency as to how the lender is setting up the terms of the loan and interest rate.
Theoretically, a lender should not have to hide from you when it comes to disclosing terms and conditions of your home loan. After all, the purpose of the disclosure is to give you an accurate understanding of what the mortgage payment will be and what your monthly payment will be. And if the disclosure is vague, confusing, or obfuscating, the consumer is unable to make an informed decision about whether to accept the terms offered.
The failure to disclose the terms of the loan on the loan modification programs is dangerous. Not only is it bad for lenders, but it is bad for homeowners and bad for those who are in the middle of the application process. If the homeowner doesn’t understand the terms of the loan, the time to call is before the lender closes the deal and approve the loan.
Lien holders often evade having their property sold for nonpayment of taxes and mortgages. This practice makes it difficult for a homeowner to get his or her house repossessed. It also denies the family the possibility of receiving foreclosure protection from the bank or lending institution.
Because lenders are allowed to keep the lien, it gives them a lot of leverage in many cases, particularly when it comes to getting the primary reasons for the foreclosure dropped. The homeowner must use the FHA loan modification program to protect himself or herself and his or her home from foreclosure.
Things You Should Know About Loan Modifications
The first thing to know about a loan modification is that it is in many cases a lower interest rate than the one previously owed or the current mortgage is already at an adjustable rate. Adjustable rates are where a homeowner pays a base rate plus a portion of the difference between the base rate and a specific rate. A homeowner may lose out if the borrower can’t lower the interest rate enough so that the initial mortgage payments don’t surpass the mortgage debt to monthly installments.
Since the adjustable rate can be lowered, it makes sense that a home loan can be modified to better fit the monthly payments. Most borrowers who have a mortgage that is over their ability to pay may benefit from a home loan modification to allow them to pay off the existing mortgage without going into debt.
Negotiating Your Loan Interest Rate
If you have a good credit score and a steady job, you may not be able to qualify for a lower rate. However, in today’s economy, the government may be willing to make a deal with a borrower that includes a lower interest rate and a loan modification that allow the borrower to pay less interest on a loan that would otherwise balloon due to an adjustable rate.
A final loan modification is for the borrower who has a mortgage that is falling behind and is on the verge of foreclosure. This borrower may also be able to benefit from a loan modification program because a standard fixed rate loan may be the only option left for a struggling borrower. In this case, the borrower needs to consider whether it would be best to modify the current mortgage to a low interest rate that would allow him or her to save money and make the mortgage payments.
All these conditions would be met if the loan modification is tailored to help the borrower rather than harm him or her. The problem is that many home loan modification programs are designed without the knowledge of the borrower.
Depending on which lender you work with, there may be standard legal requirements to fulfill before you can apply for a loan modification. However, if you do not complete the required paperwork and you do not understand how the process works, you may not qualify for the modification and you may end up losing your home.
Home loan modification is not a simple process. Whether you are looking for a short term loan modification or a long term one, you need to learn about what to expect from the process.