Mortgage modification is one of those terms that is being thrown around all over these days. Maybe you have heard of mortgage modification but are not sure just what it is or how it may be able to help you. If you are troubled by high mortgage payments and need to find a way to avoid foreclosure, you should at least know what mortgage modification is, and what options are out there for you.
Mortgage Modification: The Basics
Simply put, a mortgage modification is a type of loan modification that restructures the terms of your loan to be more in your favor, or more specifically, to improve your ability to make your payments. The right modification can get your finances back on track and help you avoid foreclosure; but it is important to know what the right one is for you.
The general rules for qualifying for mortgage modification are:
- Your mortgage payment must be a certain percentage of your monthly income; currently this is at around 30%. In other words, if you made $1000 per month, your mortgage payment would have to be above $300 per month.
- You must have provable income; if you cannot convince the bank that you are able to make the new payments, they will probably prefer to foreclose than to negotiate new terms.
- You must be able to demonstrate financial hardship that makes you unable to make current minimum payments.
After meeting these criteria you can talk to your lender and discuss modification arrangements. This may be a reduced interest rate, a lowered principal, or an extension of the loan term (converting a 15 year mortgage to a 30 year, for example). It is not a “miracle cure,” but mortgage modification is a useful tool for those who have fallen on hard times and are seeking to avoid foreclosure.