Mortgage Modification

Banks are more willing in the current economic climate to consider a modification of your mortgage loan, as this is often the best way to mitigate mortgage loan losses for both the borrower and the lender.

At present the government is also offering programs that assist with mortgage modification that benefit both the borrower and lender, so this is the ideal time to apply if you fit the criteria.

Basic Principles of Mortgage Modification?

The main factors that can be changed are:

• The Interest Rate.

  The interest rate can be lowered, thus reducing the monthly repayment.

• The Loan Term.

  The loan term can be extended, for example a 30 year loan can be changed to a 40 year loan. This means less capital gets paid every month.

At present, the Obama administration is offering additional government help to certain borrowers which means that the interest rate can be reduced extremely low and the government can even help bail you out somewhat if you qualify.

When to Apply for Modification of your Mortgage

You stand a better chance of negotiating with your lender if you approach them before you have actually fallen behind with your mortgage repayments.

This doesn't mean that you can't apply for loan modification if you are already in arrears.

Modification Steps

• Work out your income.
• See if you can take on an additional job to prove your good faith to the lender.
• Provide the lender with a proposed plan of how you plan to resolve the situation in the short to medium term. Some ideas could be:
  • You are putting your house on the market with intent to sell.
  • You have some options as to how you will increase your income.
• Provide the lender with a full financial record and history including cash flow analyses and a balance sheet.
• Request a loan modification.

Circumstances that Make it Easier to Negotiate a Loan Modification

• Your repayment exceeds 31% of your gross income.
• The loan is on your primary residence.
• You have an adjustable rate mortgage that has just moved to a higher interest rate.

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