Options Used by Banks to Modify a Mortgage Loan
Struggling homeowners could get relief from loan modification
. Fortunately, the government has a program for homeowners. This is the federal Home Affordable Modification Program for troubled homeowners.
For several decades, private modification plans helped millions of homeowners. These plans are offered by private lenders and banks. Recently however, getting a private loan modification became much more difficult. That is why the demand for government's HAMP or home loan modification program is increasing.
You probably heard already about HAMP on radio shows, TV programs, billboards, and from your neighbor. This program could help reduce your mortgage loan in half. It will enable you to save money each month during the entire lifetime of your loan.
Like most government programs, HAMP is being delivered through private lenders or commercial banks. But how these banks reduce monthly mortgage is a big question for most homeowners. Technically, lenders will give you three options to reduce your debts or interest payments. Here is a quick overview to better understand the intricacies of the program.
Interest Rate Reduction
Reduction of interest rate is the most common option adopted by lenders. By reducing the interest rate, lenders hope that struggling homeowners could meet their monthly payments. As much as 2 percent can be deducted from your interest rate.
If you have obtained a modification plan that reduced your interest rate by 2 to 3 percent, then the term usually last for five years. After the specified 5-year period, the rate will start to increase by one percent until you reach the cap. The cap is the current note rate specified in the modified terms of your mortgage loan. You and the mortgage lender will have to agree mutually on the note rate.
This is the standard framework mandated by HAMP on interest rate reduction. However, each case is reviewed thoroughly by the lender and some variations could be implemented.
Term Extension of the Loan
Another option available for you is extension of the terms of your loan. Typically, the mortgage loan will be extended up to 40 years. This kind of modification is somewhat self explanatory. So instead of having a 30-year mortgage loan, you can now have a 40-year mortgage with lower monthly payments.
Reduction of Principle
Another beneficial option provided for borrowers is principle write downs. This is the most ideal loan modification plan for borrowers who are already upside down. If you have purchased your home at the peak of appraisals, you probably do not have any equity left because of the decreasing value of homes. With principle write downs, a portion of the principle will be forgiven by the lender. This will enable you to apply for refinancing with lower monthly payments. Although very helpful for distressed homeowners, a reduction of principle is not normally offered for borrowers.
It is always best to know your various options when applying for loan modification. This will give you a greater chance of success. So you need to educate yourself by getting more information from loan modification experts.
Options Used by Banks to Modify a Mortgage Loan
By: Rob Blake
Compare Logbook Loans And Be A Knowledgeable Consumer Federal Consolidation Student Loans – Main Difference Between Federal And Private Student Loan Consolidation Same day loans-Obtain easy finance within span of hours RAP Bank product page Short Term Loans 3 Months Helps You Rectify All Your Financial Worries Quick Text Loans - Fast And Easy Mode Of Finance Help No Fax Payday Loans: Perfect Way To Avail Finances Without Any Paper Work Free Money Loans Loans Avail Without Fee Charge Secured Loans Low Interest Rate Loans No Fax Payday Loans No Papers Or Dcuments To Be Faxed, Just Apply And Get The Loan Instant Payday Loans At Your Rescue 90 Day Payday Loans-get Funds For 90 Days Loans For 6 Months Overcome Your Expenses Smoothly