In the past couple of years, millions of homeowners have started having problems with their mortgage payments, mainly due to the aggressive lending practices that were prevalent in the last home buying boom.
Most of these homeowners got approved for loans that they really could not afford while the others did not realize the terms included in their loan contract. As soon as interest rates began re-setting, many of these homeowners discovered that their mortgage payments have ballooned by as much as 40 percent.
If you missed a payment and can not ask the lender for a repayment option, you should certainly explore the possibility of a loan modification.
Bear in mind that this foreclosure alternative can only work if your lender agrees to it. Before, most lenders will not be accommodating to borrowers who request that their loan terms be modified. But with the wave of foreclosure sweeping the country, it has become extremely popular.
Basically, loan modification entails changing the payment terms and interest rates, if applicable. You should try not to confuse it with refinancing, wherein you will be paying off your existing loan with the proceeds from the new loan. Since loan modification will not mean a new loan, there will be no legal fees, survey, closing costs and other taxes involved. Also, in most cases the principal amount remains unchanged. Only the monthly mortgage payment amount and length of the loan will be changed.
Some lenders will require you to have your home appraised once again before approving your request for a loan modification. This is actually reasonable and it certainly is less troublesome compared to refinancing. The lender, in this case, just probably wanted to be assured that your home’s current market value is sufficient enough to justify the decision to modify the existing mortgage loan.
In any case, you will surely need to discuss with your lender this particular option. You will certainly be able to avoid foreclosure and manage your mortgage payments better in the future.
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