If you’re struggling financially and are unable to make your monthly mortgage payment, speaking to your lender about a loan modification might be the best course of action you could take. A home loan modification is a relief plan for homeowners who are struggling to make payments on their mortgage. In most cases, loan modifications are available to qualified borrowers who have missed monthly mortgage payments or are at risk of missing a payment.
While no one ever wants to be in this situation, many times, hard-working people have to deal with the possibility of home foreclosure due to no fault of their own. In this post, we will take a look at how you can modify your existing home loan.
How Lenders Modify Home Loans
If you need a reduction in your monthly payment, your lender has many options available to make this possible. Lenders modify loans through a variety of different methods, including reducing your interest rate, lengthening the loan terms, or switching you from an adjustable-rate mortgage to a fixed-rate mortgage.
Reducing Your Interest Rate
Cutting down your interest rate can account for hundreds of dollars in monthly payment reductions. For example, a $200,000 mortgage payment with an interest rate of 4% on a 30-year fixed-rate loan comes out to roughly $955 per month. If that rate is reduced down to 3%, your new payment would be $100 less at $843, which could make a huge difference in your ability to afford the monthly payment.
Interest rate reductions are similar to refinancing a loan, with the only difference being that you won’t have to pay closing costs or other miscellaneous fees.
Lengthening the Loan Term
Another strategy lenders can use to modify your existing home loan is to make the monthly payments more affordable by lengthening the loan period. For this example, let’s take a $100,000 mortgage that has 15 years left on it. If the current rate is 4%, the estimated monthly payment will come out to approximately $740. If a lender then takes that loan and extends it for another ten years, the payment would be reduced to $528.
Because the payments are now being spread out for a longer period of time, you get to pay a lower monthly payment without adding to the principal loan balance. It is important to note, however, that you will end up paying more interest over time if you choose to extend your home loan.
Switching from an Adjustable-Rate-Mortgage to a Fixed-Rate Mortgage
This method of loan modification can protect you from having to pay rising interest rates in the future. While switching to a fixed rate might not lower your monthly payment, it can be beneficial as a way to save you from the possibility of a higher interest rate down the road, which could negatively impact your ability to make the monthly payment. In a rising rate environment, it is prudent to lock in a fixed rate to protect yourself from inevitably higher rates in the future.
Fair Fee Legal Services
Having gone over the options that a homeowner can take to reduce their monthly mortgage, it seems clear that modifying an existing home loan can make a huge difference in payment affordability. Oftentimes, those options are not enough for those who are struggling financially.
If you’re in a difficult financial situation and would like to consult with an attorney to see if bankruptcy is right for you, consider contacting Fair Fee Legal Services. At Fair Fee Legal, we take pride in providing affordable options to those who need legal services.
If you’re delinquent on your mortgage or if you’re facing foreclosure, you can schedule an appointment with one of our attorneys today to discuss the best options are for you and your family. With years of experience, our expert attorneys will guide you in the right direction. Contact us today for a free consultation.
Fair Fee Legal Services
8665 South Eastern Avenue, Suite 101
Las Vegas, Nevada 89123