mortgage Loan Modification For The Year 2011

A mortgage modification is restructuring your current loan with your lender to change the monthly mortgage payment to an affordable quantity. This is your first line of defense whenever you have decided you want to stay in your home, but your current mortgage payments are no longer inexpensive. This might be because of an adjustable rate mortgage which went up, loss of income or any combination of factors.

How Does A Mortgage Modification Work?

A mortgage modification works by changing the loan terms with your lender. This is done by lowering the interest rate, loan extension, or in certain circumstances decreasing the principal (amount owe) on the loan.

Mortgage Modification Scenario A: Lower Interest Rate

Let's say you have a 30-year loan for $200,000 at 7.0% interest. Your monthly payments of principal and interest would be $1,330.60. Your lender agrees to lower your interest rate for a set number of years, usually two to three. For the next two years your lender lowers the interest rate 4.5%. This changes your monthly mortgage payment to $1,013.37, a savings of over $300.00/month for those two years.

Mortgage Modification Scenario B: Loan Extension

Your current loan is for $200,000 at 6.0% for 15 years. The monthly payments of principal and interest come to $1,687.71. If the lender agrees to extend the loan terms to a 30-year fixed rate loan, the same $200,000 loan at 6.0% is now a monthly payment of only $1,199.10 resulting in a savings of nearly $500 a month!

Since you are never going to recoup any of the lost equity, you refuse to throw away great money after poor on this investment. The lender is threatened with foreclosure. It's a bold move and requires nerves of steel. You're telling the lender, "This home has gone down so much in value it's now worthless to me. I do not care what happens to it. I am never going to get my money out of it with the present loan terms so you may as well just take it back. However, if you're willing to renegotiate this loan based on the properties current value, I am willing to stay." Essentially, you are offering to purchase the house back as if it has already gone into foreclosure but with new loan terms.

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