Mortgage modifications have received a lot of publicity in the media due and with good reason, millions and millions (4-5 according to government projections) will be left homeless if they don’t make appropriate loan modifications to their mortgages.
However that does not mean that loan modifications are only for the poor and destitute. We can all take advantage of the historic low interest rates and modify our loan or mortgage. Of course this is not an option that will help everyone, in some cases loan modifications cost more than they save and the only benefit they provide is to reduce monthly payments in exchange of a huge increase in interest payments throughout the life of the loan.
How can you can find out if your are eligible for a loan modification that will save you money?
1) Check the cost.
It doesn’t get much more basic than this but it is vital that we check the price tag before we buy it. To illustrate you might have heard about companies that install solar panels to save money on your electric bill. I actually looked into one of these systems for my home and when you put figures onto paper it would have taken decades to cover the cost of my investment. I happen to believe that solar panels would be a great idea and that all new homes should be forced to have them, but you get my drift, before you “purchase” a product that provides a saving it is wise to work out exactly how much you are saving.
2) Are you planning to sell soon?
Loan modifications take time to pay off the initial cost of purchasing the mortgage modification, often two to three years. If you are planning to sell soon you might lose money.
3) Have you had your mortgage for a long time?
Mortgages are set so that at the beginning of the loan you pay most of the interest of the mortgage while paying most of the principal towards the end of the mortgage’s tenure. For example in the first 5 years payments tend to be broken up in 85% to pay for the interest of the mortgage and 15% towards the loan’s principal. If you modify your loan, your outstanding loan will be reset and you will begin to pay mostly interest with your monthly payments again. This could actually reduce your equity and provide little or no benefits. Therefore if you are in the final years of your loan it might be best to stay put.
Loan modifications are generally best suited for people who have recently bought the mortgage, are planning to own the home for a long time and who have excellent credit ratings. Nevertheless it is always a good idea to contact your bank and tell them you are seriously considering refinancing your mortgage, if you are a good customer they are likely to bend backwards to keep you on their portfolio whatever your circumstances are.
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Bankruptcy, foreclosure, bad debt used to be all four letter words. Not any more, defaulting on loans, mortgages and promises is happening so often it has nearly become acceptable. Obviously there are situations where there is nothing we can do and bankruptcy and foreclosure are the only viable way. However in many if not most of the situations they don’t have to be the only way out. The issue is that many people choose to opt out just because their home is no longer the dream investment it once was. It is attitudes like that, that are behind the fragility of our credit system, a promise to pay is not always worth that much if it is no longer profitable.
It is not only the moral implications that make unnecessary foreclosures and bankruptcies wrong. Although they might often seem like the easy way out they are rarely the best way out. It is much better to use debt management to face mortgage and loan issues than just giving up at the first hiccup.
As mentioned above this comment is not meant for families and households that truly can’t pay their home mortgage or have fallen in a cycle of debt they cannot get out from.
So how can you avoid bankruptcy with debt management?
Debt management refers to the methods used to control, limit and reduce debt. This can be done in a variety of ways:
Debt reduction.
Talk to your bank and ask for a debt reduction. This is by no means a fail sure approach but banks will in some cases offer help and debt breaks to people who come out in the open and explain a bad financial situation before missing payments. The key is to talk sooner rather than later and to present your case in a way that shows that you really want to find a solution that will benefit both of you. This option will only be attractive to banks if their security on your loan is not high and they would lose more money if they simply foreclose your debt.
Loan Modification.
Loan modification or home mortgage refinancing can be a great way to reduce your monthly bills and even the overall cost of your mortgage. The key here is to make sure the cost of your refinancing is not higher than the savings or the benefits you receive from the loan modification. Understanding the real cost of your loan mod can be sometimes complicated so it pays to find good advice and information. This site has many articles on this issue.
The main loan modifications you can apply for are interest rate reduction and loan tenure increase.
You can find a home mortgage interest rate reduction by either approaching your current bank or finding a competing lender that is willing to reduce the interest rate. If you have found a better deal it is often a good idea to give your bank a chance to match or improve the offer. Banks are often willing to reduce their interest to keep good customers. As we have said before, please make sure you understand the full cost of a loan or mortgage modification before you go through with it. Clauses included in the original mortgage can make the loan modification uneconomic.
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Debt is a terrible thing to undergo, especially when you don’t know how to get debt relief. Although it is a popular word nowadays due to huge effort various governments are putting forward to buy save millions of families from losing their homes or declaring bankruptcy, finding accurate and unbiased advice is no easy task. If you are reading this page it is probably because you want help and effective tips on how to reduce your debt or at the very least manage it so that it is more affordable on a month to month basis.
If you read this article and many more on this site you WILL find help and great ideas to improve your financial situation. However you don’t want to stop here, our advice or that of any other site you are going to find online is not personalized to your unique situation.
By reading this site you will understand the principles behind debt relief an how to reduce your interest rate, monthly payments or even your principal debt but you will need to take a step further to put this advice into practice. If you don’t you will be like a doctor who smokes, a highly trained in the miracle of the human body with a thorough understanding of what harms and heals that disregards that hard earned knowledge completely due to his own weakness or laziness.
Remember ignorance is not bliss, many people find themselves in terrible financial situations they can avoid because of it, but knowledge is worth nothing if you don’t use it. So how can you find the counsel you need:
Speak to a local government helpline or visit their website. They do exist and they can be extremely helpful for people that are honestly struggling to make ends meet. In the United States you can contact the HUD.gov government website that will help you with all kind of advice on how to avoid a foreclosure, qualify for government aid and other useful programs.
If you are in need of aid you can only blame yourself if you don’t make at least the effort to ask for help from those whose job it is to offer it.
Speak to your bank. This might surprise you but talking to your bank or lender might actually get great results when managing your debt. Banks will depending on your circumstances be happy to lower your monthly payments in exchange of either a larger loan, higher interests, a modification fee or a combination of all three. However for banks to be interested in “helping” you like this you must be a specific sort of “borrower” and of course that is the kind of borrower you want to make sure you portray yourself as. Banks will only have an incentive to provide monthly payment reductions to borrowers who really can’t pay their mortgages or debts at the current monthly installment but will be able to do so if it is lowered.
However banks will not try to help borrowers that can pay their home mortgage payments if they really struggle, use up their savings or change their lifestyle in order to do so. Banks don’t care how much you struggle as long as you can pay, somehow. Secondly, banks will generally not even try to help people that have no chance of paying their debt no matter how much it is reduced. It is actually better for the bank to immediately foreclose the debt without wasting time and resources.
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