The Trouble With Mortgage Loan Modification

By LaToya Irby

In some cases, mortgage loan modification only postpones the inevitable. Rather than helping you afford your mortgage payments, a modification can put your monthly loan payments out of reach and leading you to foreclosure anyway.

What Is Loan Modification?

Once you've become 2-4 months behind on your mortgage, you likely qualify for mortgage loan modification with your lender. If you're approved for loan modification, your lender freezes your interest rate for a period of time to keep it from continuing to adjust upward. Then, your delinquent payments are added into your loan balance and your payments are recalculated. The loan is reset and you're no longer behind. You continue to pay your loan off at the new terms.

How Can Loan Modification Hurt?

In some cases, interest rates don't decrease with a modified loan, meaning your monthly payments would remain the same. However, once your delinquent amount is added back into the loan and your payments are recalculated, you end up with a higher monthly payment. You ward off foreclosure in the near future, but unless you increase your income, your mortgage payments remain unaffordable.

Choosing a Good Modification

Don't make a loan modification decision based on desperation. Before you agree to a loan modification, make sure you understand how it will impact your monthly payments. If your payments are going to go up, ask your lender about other options.

Negotiate a lower interest rate as part of your modification terms. Unless your interest rate goes down, your monthly mortgage payments will remain the same or even increase. Sure, you avoid foreclosure for a little while, but without lower payments, the risk remains. You can also ask your lender to waive some of the late fees charged on your missed payments.

Get foreclosure-prevention counseling from a local consumer credit counseling. Advocates can sometimes help you negotiate better terms with your mortgage lender.

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