subject: Mortgage Loan Modification [print this page] With the fall in interest rates, many homeowners are rushing to refinance their mortgages. Refinancing allows you to restructure your loan at a different interest rate (lower in most cases) and a different loan terms from your current mortgage term. The typical objective of a refinance is to reduce the amount of monthly payments. Some homeowners also refinance to extend the loan term to benefit from smaller monthly payments.
To qualify for a refinance, there should be sufficient equity in your home and your credit score should be decent. The next factor that is considered is your employment status and income. If you do not have a stable income, it could be extremely difficult for you to convince the lender about a refinance. In such a situation, you can instead consider a mortgage loan modification.
How mortgage loan modification helps you
With the poor state of the housing market and high unemployment rate, some banks are offering loan modification plans to help those who cannot afford their existing monthly payments as well as those who are currently out of job. In the former scenario, the interest rate or loan term can be adjusted to make the payments more affordable. Unemployment is a challenging issue and banks have to consider every application for loan modification from unemployed homeowners individually to determine how best they can assist them. If you are currently out of a job, but have been in jobs before and have a good employment history, then you stand a good chance of getting a short-term reprieve.
Those with good future prospects of getting a job may be offered forbearance or a short-term modification. In the latter case, you can make smaller payments for a year till you land a job. After you get a job, you will be required to make increased monthly payments till you catch up with missed payments. Such an arrangement can give you enough time to get your finances back on track. A loan modification thus offers a lot of benefits that are not possible even in a refinance.
When you opt for a mortgage loan modification from a bank, you will not be charged closing costs or other fees that are typically associated with a refinance. But there will be certain qualifying parameters, which almost all homeowners are likely to satisfy, to obtain a mortgage modification.
Mortgage modification is a short-term solution
Unlike refinancing, mortgage modification is a short-term solution which is a good option when you are going through a rough patch. It is unlikely to be extended and you are expected to find some source of income, after which the lender will offer you a modified set of rate and terms.
If you are not able to secure a mortgage refinancing offer from a lender, then instead of brooding or feeling helpless, you should consider alternatives and try to negotiate with your lender. If you have a good employment history, the lender may be sympathetic to your situation and offer you a temporary reprieve, which may just be enough to improve your financial situation.
Mortgage Loan Modification
By: Jeff Livingston
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