When dealing with loans, you’d be interested to find out about loan modifications. The process of loan modification is not necessarily an easy one, but it is relatively simple to figure out whether you are eligible to modify your pre-existing loan. Determining if you are eligible for a loan modification is an important step in the process, obviously, so here is a quick guide to help make your life easier.
Loan Modification Basics
A loan modification is essentially a change in the terms of your pre-existing mortgage loan. Generally this change will cover the interest rate, a reduction in monthly payments, and slash for the duration of the loan itself. Such modifications are a boon to those who are falling behind in their monthly mortgage payments. This type of modification can help prevent homeowners from having to deal with the possibility of foreclosure.
A traditional modification deals with the lender’s loan internally to the servicer. What this means is that the lender and the bank that they are borrowing from work together to modify the loan themselves “in-house.” Generally this is a slightly more difficult process, because the bank you’re dealing with is the servicer of the loan already. As such, the collateral for your loan is generally the home, and the bank is still not at loss in the process of foreclosure.
A less difficult loan modification process comes courtesy of HAMP, or the Home Affordable Modification Program, a government program design to help distressed homeowners to keep their homes and avoid foreclosure. If the homeowner qualifies for this form of assistance, HAMP works on three simple steps to help reduce monthly payments. The three steps are followed only if necessary, and include reducing the interest rate to 2%, extending the term as far as 40 years, and/or deferring a certain percentage of unpaid balance until the borrower can either sell or transfer the property.