Description: Know what mortgage modification is, why people go for it and why lenders approve it.

Some interesting facts about mortgage modification

Homeownership has always been a cherished dream for Americans and it works as a source of financial and mental security. When the economic condition of the home loan borrowers change for the worse, they often find it difficult to keep up with their monthly mortgage payments. When this happens, a borrower might prevent foreclosure and retain their home by requesting to their lender for a mortgage modification or mortgage loan modification.

This article would help you understand the mortgage modification process by providing some details and answer some common queries that borrowers often have.

What is mortgage or loan modification?

A mortgage modification is nothing but adjustments to the terms of a home loan performed by the lender. The idea is to make the terms more reasonable for the borrowers so that they can pay off the loan comfortably. Modification might involve adjustment to the interest rate, changing the type of loan (switching an adjustable rate loan to fixed rate loan) or extending the repayment term. The lender is willing to modify the loan when they see that the borrower is undergoing severe financial hardships and doesn’t even have the ability to refinance the loan.      

Why should you go for loan modification?

The principal and most evident reason for which borrowers seek modification is that they are able to save their home with monthly payments that are manageable to them. The monthly mortgage payments might go up because of a rate adjustment for an adjustable rate mortgage. The borrower might also face difficulties to make timely payments if he loses his job.

One more reason why borrowers prefer modification is that it saves them from foreclosure. Foreclosure remains on their credit report for 7 years and has a negative impact on their credit scores. With the record number of foreclosures experienced by the lenders, it’s becoming more and more difficult for borrowers to buy a home after foreclosure, even with fairly large down payments.

Why lenders are accepting modification?

Lenders can gain from modification in different ways. They can save the cost of foreclosure expenses. Filing for foreclosure and carrying out the foreclosure procedure can take a lot of time and money. They would rather prefer modification since it is more cost-efficient.

As soon as a borrower opts for foreclosure, they typically stop making loan payments. This raises the opportunity costs of the property for lenders, which incorporate taxes.

If the borrower makes a decision to shift to another location, the lender is left with the repairing costs of that property like maintenance and association costs (if applicable) and utility costs, particularly for homes in more inclement weathers.

A foreclosed property frequently loses value because of carelessness in upkeep or sabotage. Dissatisfied homeowners might intentionally allow a house to slide before they are expelled and even take away valuable items like major domestic appliances that came at the time of buying the home. If a lender tries to sell a house the value of which is lower than what the borrower owes on it, particularly in a market with dropping home prices and extended market periods, it could result in big losses for the lender.