Loan Modification is a compromise between a lender and borrower when the borrower is unable to repay the loan installments according to its original terms. Modification restructures the terms on which the loan is based without any additional refinancing. The lender may modify the current interest rate, principal balance due, number of months within which the loan must be paid, or other terms of the loan to suit the finances of the borrower.
With the help of professionals, the borrower can convince the Banks and lenders to compromise on less money and let the borrower stay in the property rather than bearing the expense of a foreclosure lawsuit.
Generally loan modifications can take place at any point in the foreclosure process, whether pre-foreclosure, after judgment is entered, or in very rare cases even after the foreclosure.
Loan Modification Information
Loan modification can assist in making changes to the loan with the help of these four techniques:
By reducing the Interest Rate-This is the most preferred technique of loan modification which involves the reduction in the interest rate of the loan. It can also change a variable rate loan into fixed rate loan. Sometimes, the lender will modify the interest rate in “steps,” meaning the interest rate starts at some lower rate (like 2%) and gradually increases every six months, stopping at a higher fixed rate (like 5%).
By extending the timeline of Loan- To minimize the amount of monthly loan installments, the paying period of the loan is increased by the Bank. The extension results in a higher interest rate that has to be paid yet reduces the burden of monthly loan payments.
Re-amortization with cancellation of debt- In case of missed loan installments, the bank may consider adding those payments to the principal balance of the loan (sometimes called adding to the end of the loan).
Cutback of the Principle Balance- If the value of property is less than the amount of the loan borrowed then the lender might choose to cut the principal balance.
Beware of foreclosure rescue or loan modification scams. By hiring a lawyer, the borrower receive advice and counsel regarding the modification of their loan installments based on their financial condition, budget, or other considerations.