What Are The Different Types Of Loan Modifications Available?
Loan modification allows the banks or any financial institutes to make the monthly payments affordable for the borrowers
. The lenders can alter the interest rates, loan balances, loan terms and other part of the loan agreement to modify the loan. There are many different types of loan modification lets check them:
Interest rate reduction:
There are many ways to get down the payment, cutting the interest rate on a 30 year loan from 6 to 3 percent will reduce the payment about 30 percent while extending the loan terms to 40 years will reduce it by just 8 percent. Rate reductions are quiet flexible and they can be adjusted according to the individuals needs. To modify the loan modification rates and reduce it, few cases are made temporary.
Capitalization of Arrears:
The due payments of past and late fees which have aroused due to past delinquencies are added to the loan balance. A new loan payment which is higher than the previous payment is also calculated. This is the most common modification which is done, as its very little cost to the investor.
Term extension:
In the trial loan modification agreement, term extension is the payment reduction modification which is the least costly to the investor. If a loan is originally for 30 to 40 years and is now only few years old then the payment can be reduced very little this way. But if a loan is originally for 10 to 15 years and is extended to 30 years than its will reduce the payment materially.
Principal balance reduction:
Mortgage payment decline in tandem for e.g. a 30 percent drop in the balance will result in a 30 percent drop in the payment. Balance reduction in the home affordable modification program has one main advantage for investors, they lessens the borrowers negative equity which will increase the borrower incentive to do everything to keep the house.
Forbearance:
Typically 30% of the sub-prime lenders will offer a workout plan which require immediate pay at least 20% or more of the delinquencies which includes foreclosure fees and the balance of the delinquencies will be added to the regular monthly payments for a period of 6 to 48 months. Such loan modification help is great for the homeowners and they can easily make their payments affordable.
Get Approved for Home Affordable Modification Program