If you are like most Americans, you may be confused by all of the different mortgage relief options available. Besides the various options, finding out which one is best for you and your financial situation can be even more overwhelming. One thing is clear, you want to avoid foreclosure. Before agreeing to anything, review the following about the different mortgage options:
Loan Modification — involves making changes to the current mortgage loan terms and conditions in order to lower monthly payments or reduce mortgage debts. Common loan modifications are lowering the interest rate, changing an adjustable interest rate to fixed, extending the life of the loan or temporarily suspending monthly payments.
- Pros: the homeowner can keep and remain in the home
- Cons: most people don’t qualify due to poor credit, high debt balances or the home has a depreciated value
Short Sales– involves the lender agreeing to release the homeowner from liability over the mortgage debt after the sale of the home. In most cases, the lender agrees to accept less than is owed on the original mortgage debt, but leaves the homeowner with the responsibility of selling the home for a good price.
- Pros: mortgage debt are forgiven while better protecting the homeowner’s credit
- Cons: the process can be difficult for the homeowner and the homeowner must vacate the home after the sale
Forbearance — involves a reduction in the amount of mortgage balance or temporary suspension of the monthly payments. Generally, this is a short term solution for homeowners that need a temporary break from high monthly payments.
- Pros: the homeowner is able to keep and remain in home with a reduced or suspended monthly payment
- Cons: lenders may require higher monthly payments after the forbearance is over in order to compensate for the suspension or temporary lowering of previous payments
Deed In Lieu — involves the homeowner voluntarily transferring the deed to the lender in exchange from being released from the mortgage debt.
- Pros: reduces credit damage and absolves the homeowner of debt liability
- Cons: that the homeowner must move out and give up rights to the home