Applying for a home loan modification? You must know the pros and cons of the home loan modification before submitting your application. Those homeowners who for certain reasons find themselves in a position in which they are unable to make their mortgage payments, can get benefit from the getting a loan modification. There are different ways through which loans can be modified, but all of the ways have the same objectives in mind that.
There can be benefit of home loan modification for homeowners and as well as lenders because sometimes it can be the best option and interest of the lender to avoid having to go through the foreclosure process, especially when the borrower is truly having a short term hardship and eventually he will be unable to resume making his or her payments timely.
A home loan modification is also a popular solution for helping the homeowners to avoid the foreclosure. Loan modification can also help the homeowners achieve a lower monthly mortgage payment that is affordable according to their financial needs and condition. But to qualify for the home loan modification, homeowners should be fitting to all of the qualifications set by the homeowner’s lender to approve for the loan modification assistance. Those homeowners who do not know about the process of loan modification they may wonder about that, what are the advantages and disadvantages of the home loan modification, but one thing is confirmed that there are many advantages that come with this type of assistance. Home loan modification is one of the most debatable topics for the last five years.
Pros Of The Home Loan Modification:
- Extended Payment Terms:
To reduce the monthly payment on a mortgage without changing the interest or the principal, one of the ways is to extend the term of the loan. For example, if a borrower has a $150,000 mortgage in which they take out an interest rate of 6 percent for 30 years, then the payment on the principal and interest would be for $899.33. But if the terms of the loan were extended from 30 to 40 years, then the payment would be $825.32 for the $74.01 per month savings and $900 per year. Like this the savings of each month are definitely a benefit, but now the homeowners will be making the payments 10 years longer before their home is paid off. It can be a workable option by giving the alternatives to foreclosure, especially if the borrower plans to move at some point in the future.
- Interest Rate Reduction:
Sometime the lenders will agree to reduce the interest rate on the mortgage usually as a short time measure. For a short time the reduction of the interest rate on a mortgage can help a homeowner through financial crises. A permanent interest rate reduction is commonly achieved by refinancing the loan. For example, if a homeowner has a $150,000 mortgage for 30 years at 6 percent for a short time rate reduction to 4.5 percent, then the monthly payment would drop from the $899.33 to $760.03, and the savings would be about $139.30 per month. The interest rate for that the kinder give up during the period when the rate is reduced can be forgiven, but mostly it is added to the back end of the mortgage and to be repaid when the loan is grown or the property is sold.
- Principal Reduction Versus Principal Forbearance:
Both of these two terms have similar sounding names but actually these are two different things.
- A principal forbearance is where the lender forgives the interest on the part of the principal. The lenders collect zero percent interest rate on the part of the loan.
- A principal reduction is just like it sounds. The lender reduces the amount of the principal that the borrower has with no repayment expectation.
- Freeing Up Money For Other Debt:
Those borrowers who need a loan modification they often have a significant for other debt, such as auto loans, credit card payments, student loans, etc. Which is pay on each month. The credit bureaus use one of the criteria in determining the credit scores for borrowers is the ratio between the balance and the limit of the resolving lines of credit. Those borrowers who are able to lower their mortgage payments they will have money to pay down each month or to pay off the other debt.
Cons Of The Home Loan Modification:
- Time Is Not On The Borrower Side
One of the biggest problems faced by borrowers when it comes to the home loan modifications is the endless delays and months that it can take to get any solid answers from their mortgage lenders and servicers.
- Applying For A Home Loan Modification Does Not Stop The Foreclosure:
One of the real truths, despite loan modification companies have benefits, but as well as applying for the home loan modification does not stop the foreclosure. In fact, many of the homeowners find themselves being expelled when they are still waiting for their lenders to deliver a decision.
- Loan Modification Is A One Shot Deal:
The borrowers have only one shot at applying for a home loan modification. Getting it wrong can be a problem for the homeowners and they can be stuck in a worse deal on a home. Because of it, this is necessary to seek an expert help about the process as much as possible before applying for the home loan modification. Home loan modification process is not much easier and all smooth sailing, but it can be a worse dealing some times.