Saying No To A Mortgage Modification

As one of the most sought after, and also most denied, types of mortgage debt options accepting a mortgage modification offer is not always the best solution. While securing one can be difficult for many homeowners, there are some reasons why accepting a lender’s modification offer should be carefully considered.

Choosing Wisely

Loan modifications have gained lots of attention in recent months as the push for more lenders to open up modification offers has become one of the main sources of attention in resolving the foreclosure crisis. Principal mortgage reductions, temporary suspensions in payments or interest rate and even waiving delinquency fees have been put on the table for homeowners struggling with their mortgages. However, many homeowners have little idea whether these enticing offers are actually beneficial to their situation.

First, a principal mortgage write down may not be sufficient enough to fully alleviate the financial burden of maintaining one’s mortgage payment. For example, writing down the principal by $20,000 on a $200,000 5% fixed, 30 year mortgage would save less than $100 a month; whereas refinancing to a 3.5% interest rate could save as much as $275 on the original mortgage balance. Many people assume a principal mortgage write down would save more without ever crunching the numbers to see what the outcome would be. Also, people with second mortgages may qualify for additional assistance that could be jeopardized by a principal mortgage write down. Having the primary mortgage balance lowered through a modification could disqualify the homeowner from having their second mortgage “stripped”, or eliminated, in bankruptcy.

Temporarily suspending payments and interest rates can be tricky business. While most people welcome the relief offered by such a break in payments, many people fail to perform adequately during their relief time. Overspending, failing to save or develop a plan to boost income during a temporary break in payments can lead to further financial trouble when payments resume. Also, the homeowner should assume that these payments will be required to be made up at a later date, something most people never think to consider during their break from original payments.