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The new mortgage plan is out there, fresh out the box. The new loan mortgage plan has been designed to help more people dig themselves out the current crisis. There are actually some clever incentives for those who try and work with their mortgage even if it is upside down. So here are the two question we are all asking: What does this “new mortgage plan” offer? And who qualifies?

The mortgage plan has two main objectives:

1) To help people who are going to foreclose on their mortgage because they are late in their mortgage payments. This demographic is the priority of the plan with good reason. The avalanche in home foreclosures is affecting the whole housing and construction industry besides these are the families hardest hit by the housing crisis. The mortgage plan will help these homeowners to modify their mortgages and make them affordable.

2) The second objective is to help with the home mortgages of home owners that can’t refinance their home and take advantage of the current lower interest rates because the value of their home has dropped so much it is worth less than their mortgage. The new mortgage “deal” will help these home mortgage owners to refinance their homes with lower interest rates. Unfortunately the restrictions on this type of home mortgage are so high the number of homeowners that will benefit from it will be significantly lower.

In a nutshell the two-pronged working plan is to save the mortgages or homeowners that are behind in their payments and that would otherwise lose their homes with a mortgage modification that would reduce their monthly payments and make them affordable. The second prong aims to open under water mortgages that are worth more than the value of the home to refinancing with the current lower interest rates.

Who qualifies?

The devil is as usual in the detail but here are the main points homeowners must meet to qualify:

1) The mortgage must have been secured before January the first 2009.

2) The primary mortgage must be less than $729,500. This figure has actually been revise a few times to include the mortgages of homeowners in expensive states and areas.

3) The homeowner must live in the house he is requesting aid for. This mortgage plan is not there to save investments but family homes.

4) The homeowner must sign a financial hardship statement that documents his inability to pay his mortgage.

5) Tax returns and pay stubs must be fully documented.

6) If the homeowner pays over 55% of his income on debts he must sign up for counseling. I think this is probably one of the best ideas this mortgage plan sets out as so much of the debt trouble we get into is due to bad financial habits that can be un-learned with some practical help.

As you will have noticed the requirements on the new deal have been relaxed and more mortgage homeowners should be able to benefit, but will it be enough?

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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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First of all we must start by saying the debt consolidation loans may not be a good idea for you. In fact many dubious loans are often “sold” as debt consolidation loans when they are just a bad loan you wouldn’t want to touch with a barge pole.
Debt consolidation loans are loans that are purchased to pay off loans. This is especially attractive for people who have a number of loans with different companies. For example a good candidate for a debt consolidation loan might have a few thousand dollars in credit cards, a car loan and a mortgage to pay. The credit card loans probably are set at a 16% interest rate, while the car loan will probably be a little lower at around 10%, with the mortgage at even less probably around 7% depending when the person got the mortgage and how good the deal was. Unless this person has an incredible wage he is probably in a bit of trouble as his monthly credit card debts, car loan and mortgage are eating up most of his income. A debt consolidation loan will pay for all his debts and allow his monthly payments and his interest rate to drop.

How do they work?

Debt consolidation loans often work by extending the length of the loan. If you owe a total of $90,000 to 3 different lenders it will pay all of them with a large loan and charge you the total as a single mortgage-like loan. When you are paying for credit cards the time you have to pay back differs from credit card to credit card, you might have to pay a minimum, or you might be suffering from the high interest rate that seems to be increasing your debt faster than you can pay it. Your car loan will be set at another rate of payment, as will your mortgage. Paying for various loans at the same time can make it impossible for a household to meet this payments, however if these loans are combined into one large loan, the payments can be reduced and made affordable for the borrower.
What is good about debt consolidation loans?
Debt consolidation loans can allow a household to take control of their monthly expenses and get to the end of the month without having to get further into debt. For some people it is the only real option besides either losing their home, their car or even declaring bankruptcty.

What are the cons of debt consolidation loans?
They can be expensive. Debt consolidation loan providers are not often charitable organizations if you get my drift. They are there for the profit and know that people will be willing to pay a lot of money to bring down their monthly payments to an affordable level. Debt consolidation loan lenders will often charge large fees for their services and provide sub premium (higher than normal) interest rates. By extending the loan borrowers will often automatically pay more interest because the tenure of the loan is longer even if the interest rates are lower.

They can cause you to lose your home. Debt consolidation loans are often designed to be linked to your home as security. If your loans were made up of credit card and car loans you might have been struggling to pay them but your house was never at risk. Credit card handlers cannot force you to sell your house to pay them. However if you get a debt consolidation loan with your home as a security and you cannot make the payments you could lose your home.

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How to shop for a new loan modification?

Loan modifications are becoming the fastest growing financial products in volume and profitability for banks and lenders. The Government is putting all its weight behind them making them as sure a bet as you could ever hope for.

The high demand of mortgage refinance and loan modification has caused an increase in the type of loan modification and mortgage modifications on offer. Although we all like choice, especially when that breeds competition and cheaper prices the large number of options does make choosing a loan modification a little harder.

What can you do to shop for a good loan refinance deal at a great price without of course getting ripped off in the process?

Step 1. Start at home, ask your current lender for a better deal.
Lenders know it is a dog eat dog world out there and they might have to give you a better deal if they want to keep you as a client. Talk to your mortgage administrator and tell him you are looking to modify or refinance your mortgage, make sure you mention how you are looking for the best deal around. Your current lender might be willing to waive fees other lenders cannot. For instance your current lender might be able to use the inspection and appraisal reports from your initial mortgage or not charge you an application fee.

Step 2. Ask around, compare before buying.
It is important that you shop around and look for the best price and conditions, don’t go for the first offer you get or the nicest salesperson. Ask for estimates on which to base your decision of which loan modification to buy. All lenders in the U.S are required by law to provide you with a good faith estimate that will give you a good idea of the real cost and savings of your new loan modification.

Step 3. Ask for any estimate and offer in writing.
A Spanish expression says, “words are gone with the wind” meaning that words only without some other backing can just fly away with little importance or significance laid on them. That is why it is important to get a written copy of your loan modification agreement so that you can hold the lender accountable to the deal they have offered you.

Step 4. Search newspapers and shop online.
A great way of searching for loans is by shopping online. In the comfort of your home with all the time you can spare you will be able to find the best deal for you with the savings a cheap medium like internet can afford sellers.

Step 5. Careful with adverts.
This is obvious but important. Adverts are designed to place the mortgage modification in the best light possible. Make sure you check the details of the mortgage and find out the real cost and hidden costs, like prepayment penalties that are included in the loan modification.

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What does no-cost loan refinancing cost you?

If you are shopping for a loan modification or home mortgage refinance you have probably heard of no-cost mortgages and loan modification. If you have done some research into loan modifications and mortgage mods you know that they are far from free, in fact a good rule of thumb for loan modifications fees and costs is anything from 3 to 5 percent of the outstanding principal (money you still owe) on your loan.

So how can lenders and banks offer no-cost loan refinance? Well as you probably guessed lenders have their own definition of no cost. In fact the exact definition can change from lender to lender so it is a good idea to ask the salesperson or customer care assistant what they specifically mean by no cost.

In any case you can be confident that lenders don’t mean they are going to waiver all the fees and pay for you to get your loan modification. No-cost mortgages refer to an arrangement between the lender and borrower to avoid paying any up-front fees for the mortgage refinance or loan modification by paying the fees in the future. No cost loans are like icebergs, most of the cost, in fact more than you would ever expect, is hidden. There are two main no cost loan options lenders offer:

No fees but a higher interest.
In this option the lender offers to cover all the expenses related with the mortgage with the condition that the borrower accepts a higher rate of interest. The higher rate of interest will be charged during the whole lifetime of the mortgage. It is important that you ask for detailed estimates of the real costs of this no-cost alternative. This estimate should show the cost of the mortgage fees and how much extra interest you will be paying with the higher rate of interest.

Taking a loan to pay the loan fees.
This option of no-cost loan modification actually involves taking on a loan to pay for a loan, or at least the loan fees. With this option the lender covers the mortgage modification fees but includes the fees as part of the loan. This will mean the borrower will have to pay for the fees with interest as part of their modified mortgage. Again it is important to understand what the real costs of your no-cost mortgage modification will be. Ask for an estimate that details the real cost of your mortgage fees after paying interest on them for the length of the loan.

Lenders will often try to include a prepayment penalty clause in the mortgage or loan contract to discourage borrowers from changing loans in the early years of the modified loan. As far as you can you should try to avoid or reduce this penalty as they will reduce flexibility when trying to find a better deal in the future.

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Are mortgage modifications cost effective?

My last blog detailed the costs and fees associated with a home loan or mortgage modification. If you read the article and you had never negotiated a loan mod you were probably amazed at the amount of fees that must generally be paid in order to get a loan modification, if you had it probably just brought back bad memories, sorry.

So is getting a loan modification too expensive to be worth considering? The increasing amount of people that are taking loan modifications would make you think there must be something in it, and that is generally true.

The cost of a loan modification or mortgage modification is generally between 3 to 6 % of the outstanding amount of your mortgage. This means that if you still owe 50,000 dollars on your mortgage you can expect to pay around $2,500 in fees. That is a lot of money, can a loan modification with an interest rate reduction justify the cost? It can, and we will prove that shortly.

However for many people the main point of a mortgage modification is that they don’t lose their home not saving money, however with the current interest rates you can generally do both. Work out how long it will take for you to break even on your loan modification?

Let’s imagine you negotiate a 30 year mortgage at 5% interest on $200,000 and you previously had a 6% interest rate and that your home loan modification fees amounted to $2,500, which would be a pretty good deal. The first thing you would notice is that your monthly mortgage payments would drop by $126 dollars. This saving needs to be put into perspective deducting the cost of tax. Assuming a 27% tax rate you are left with $91 in savings every month. Doesn’t sound that much when you just spend $2,500 in fees, does it?

However you will break even in only 27 months ($2,500 / $91) every payment after will be saving you 91$ every month from your previous mortgage. This example assumes that you have not lengthened (or shortened) the tenure of your loan. If you increase the time you have to pay your loan this increases the interest you pay and will negate some (if not all) your savings.

As you can see calculating the cost and savings of your loan modification is not rocket science and anybody armed with a little algebra can get into the nitty-gritty of a loan mod.

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What Is A Home Loan Modification

Home loan modification, or mortgage modification are words that are heard a lot lately in the media, in the kitchen and in the office. More and more people are having a struggle to pay their home loans and are looking for a way of lowering their monthly mortgage payments. Others have heard that interest rates have dropped (they have, and a lot) and want to know if they can also save on their monthly expenses, nobody likes to pay more than they have to, right?

But when asked what a loan modification is exactly, many are unsure. In fact some rather surprising definitions have come up linking loan modifications with bailouts, foreclosure and other banking terms that although sometimes related are by no means synonyms.
So what is a loan modification? A loan modification is a permanent change to one or more terms in a loan or mortgage contract. Often loan modifications occur when the borrower cannot afford the mortgage payments due to a rise in interest rates or a loss of income. The loan modification allows the loan to be reinstated avoiding foreclosure of the mortgage, which is bad news for both the borrower and the lender. The loan modification makes the loan affordable for the borrower that can continue to pay the home loan.

Of course loan modifications do not only occur when the borrower is in financial difficulties it can also be used as a way of finding a cheaper loan or as a marketing tool by banks who want to attract more customers.

Whether you are looking for a home loan modification because of financial strife or because you want a better mortgage there are three main ways you can modify your loan. These loan modifications are often combined to create a loan modification the lender and borrower can agree on.

Lower interest rates.
This is often the selling point of a new borrower offering to buy your mortgage and sell it back to you at a lower interest rate. This is the best kind of loan modification for a borrower because it lowers your monthly expenses and the overall cost of the mortgage.

Longer loan tenure.
This means that the lender “allows” the borrower to take longer to pay the loan. This can be good for the borrower because it reduces the monthly cost of the loan. However it has the effect of increasing the amount of interest the borrower pays.

Larger loan.
This is a home loan modification banks love. Increasing the home loan can be a great way of paying for other debts and consolidating them in one big loan. This can be a good idea for borrowers that are paying high interest rates for other debts like credit cards or car loans and would prefer to include it in their lower interest mortgage payments.

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What Is A Home Loan Modification

Home loan modification, or mortgage modification are words that are heard a lot lately in the media, in the kitchen and in the office. More and more people are having a struggle to pay their home loans and are looking for a way of lowering their monthly mortgage payments. Others have heard that interest rates have dropped (they have, and a lot) and want to know if they can also save on their monthly expenses, nobody likes to pay more than they have to, right?

But when asked what a loan modification is exactly, many are unsure. In fact some rather surprising definitions have come up linking loan modifications with bailouts, foreclosure and other banking terms that although sometimes related are by no means synonyms.
So what is a loan modification? A loan modification is a permanent change to one or more terms in a loan or mortgage contract. Often loan modifications occur when the borrower cannot afford the mortgage payments due to a rise in interest rates or a loss of income. The loan modification allows the loan to be reinstated avoiding foreclosure of the mortgage, which is bad news for both the borrower and the lender. The loan modification makes the loan affordable for the borrower that can continue to pay the home loan.

Of course loan modifications do not only occur when the borrower is in financial difficulties it can also be used as a way of finding a cheaper loan or as a marketing tool by banks who want to attract more customers.

Whether you are looking for a home loan modification because of financial strife or because you want a better mortgage there are three main ways you can modify your loan. These loan modifications are often combined to create a loan modification the lender and borrower can agree on.

Lower interest rates.
This is often the selling point of a new borrower offering to buy your mortgage and sell it back to you at a lower interest rate. This is the best kind of loan modification for a borrower because it lowers your monthly expenses and the overall cost of the mortgage.

Longer loan tenure.
This means that the lender “allows” the borrower to take longer to pay the loan. This can be good for the borrower because it reduces the monthly cost of the loan. However it has the effect of increasing the amount of interest the borrower pays.

Larger loan.
This is a home loan modification banks love. Increasing the home loan can be a great way of paying for other debts and consolidating them in one big loan. This can be a good idea for borrowers that are paying high interest rates for other debts like credit cards or car loans and would prefer to include it in their lower interest mortgage payments.

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How Do Banks Profit From Mortgage Modifications

The beauty of capitalism is that there is some degree of transparency, we expect everyone to do everything for some kind of profit or benefit. As it is often said there is no such thing as a free lunch, the world of mortgages and loans is no exception. Taking aside a couple of laudable nonprofit loan organizations, banks and lenders lend for profit, understanding how and where they make a profit can help you understand how you can save money and get a better deal on your loan modification or mortgage refinance.

Profits for banks can come from  all kinds of avenues when clients modify their mortgage or loan. This article will point out some of the basic you must keep an eye for.

Mortgage modification fees

Banks and lenders make money by moving money and papers. If you modify an option, clause or interest rate on your mortgage it is very likely this will cause you to incur in some kind of fee. This is bad and good news. If a bank is going to make money on your loan modification you don’t have to feel like it is charity, modifying your loan can be a positive thing for both of you, it also entitles you to demand a certain level of customer care.
It is important to note that banks should only include fees in a loan modification that belong to the current loan modification for reports or actions carried for the borrower, previous costs and fees should not be included in the modification.

Extending the length of the tenure.

Making a loan last for a longer time is good news for your bank and can be good news for you, mind you it can be terrible news also.  It is good news for the bank because they guarantee they are going to a return on their investment for a longer period for the same amount of cash.  This is an important point to think about. Some borrowers extend their loans without even thinking twice, not realizing how expensive it can be in extra interest.

Increasing the principle borrowed.

Just as the car salesperson tries to sell you all the extras he can a good mortgage salesperson might try to get you to increase the amount borrowed as part of your loan modification. As you probably guessed, borrowing more money will cost you more. This is fine if you can afford it or you need it very desperately, nevertheless it is worth thinking twice before digging yourself deeper into debt.
As you can see banks can actually make a profit from a modification of your mortgage making mortg

age modifications a potential win-win situation if everybody does their part. Your part is to be informed, understand your options and keep your eyes on the game.

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Mortgage Modifications, Mine Field Or Land Of Milk And Honey

Mortgage modifications and loan refinance can be both a mine field or a promised land of mortgage savings. Knowing the difference between a good loan mod or mortgage refinance is not really that complicated, with some simple tips you can quickly see if a mortgage is for you or is a bad idea.
This article will discuss the real savings and advantages a loan modification can have on your mortgage and your monthly payments (notice that there is a difference). It will also discuss briefly what dangers you must avoid so that modifying your mortgage does not cost you more than it should
Lower interest mortgages, smaller is much better.

All things being equal lower interest loans are better than higher interest loans. The good thing with mortgages is that apart from fees all mortgages ARE equal so interest rate is a great measure of the desirability of a mortgage.

Just to illustrate how much you can save if you can modify your loan to a lower interest rate check out this example. Imagine you are paying for a $200,000 home at a 30 year fixed interest rate at 6%. What would you be saving if you modified your mortgage to 5.5% instead? Each month you would save $63, in a year $756 and $7560 in ten years. That is with a 0.5% interest saving, imagine what you could do with a 2% drop in your mortgage interest rate.
Increasing your loan or mortgage tenure.

Another option borrowers opt for when modifying their mortgage is to lengthen the period of a loan to lower their interest rates. Let’s illustrate this with a simple example. Imagine you borrow $1,000 and you agree to pay it in 10 months. That means you will pay $100 a month plus interest. If you are struggling paying your mortgage you could lengthen the period of your loan to 20 months, which would mean $50 a month plus interest. Of course the minefield to look out for is the increased interest rate you would pay on a longer loan because interest is generally paid either monthly or yearly.

Decreasing the length of your loan.
Reducing the length of your loan is  a great idea if you can afford it. A great time to do it is when the interest rates drop and you can use your interest savings to finance a portion of the increase in monthly payments. Again this is better explained with an illustration.
Imagine you have a 30 year loan at 6%. You would be paying around $1,199 a month and a total interest of $231,640 interest. If you reduce your loan to 15 years and find a lower interest rate  of 5.5% your monthly payments will rise but only from 1,199 to $ 1,634, but you would only be paying $94,120 dollars for the loan.

This means that you would be saving around $140,000 on your mortgage with this modification.

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