In today’s society, many people are having difficulty with managing their finances, and financial burdens. They may have lost a job, or had their hours reduced, or may just be finding they have taken on too much debt from a variety of sources and the payments are many and too much each month. Loan modification is a process where you renegotiate the terms of the loan contract. This may be by simply extending the length of time over which you must pay the loan off, or it could include reducing the interest rate. Both of these possibilities will help to reduce monthly payments and take some financial pressure off the monthly budget.
Most people believe that the only time to modify a loan such as a mortgage is when you are afraid of losing your home, or in other desperate financial need. Although this can be extremely helpful in those circumstances, there are also other benefits to making modifications if the timing is right. For example, if interest rates have dropped considerably, you can often negotiate a better rate for the term of your mortgage by finding middle ground between the two rates and extending the contract period somewhat. This can save quite a bit of money over the long term.
More frequently, loan modification is sought when individuals are in difficulty financially. If your mortgage payments fall behind, you are taking a chance that the bank will foreclose on you mortgage and put your home up for sale to recoup the funds and pay out the loan. You will no longer own your home, and this can make it difficult at best to own a home in the future. However, the banks do not really want to own your home. It is costly to use their resources in this way. It is important before you get behind to reach out to the lender and work together to perhaps modify your mortgage as suggested above so that you both benefit. The lender will be paid and you will keep your home. Do not hesitate to approach the lender before you are in arrears. It is the best time to negotiate a better loan structure that will help you meet your obligations.
Over the term of your mortgage, you will pay enormous amounts of interest. One of the additional benefits of remaining a homeowner and preserving your credit is that you can affect significant change in respect to this interest. If you can negotiate a better interest rate, or if you budget is more relaxed, and you may in time be able to put extra money into your mortgage bringing down the principle and saving much more money in the long run. When the principle is reduced, it can dramatically affect the amount of interest paid over 30-40 years.
Loan modification is just another financial tool. It is not only for those in financial crisis, but is a fantastic way of preventing home loss and loss of your investment in your home. Consider discussing the options with your lender or financial advisor to see if you can benefit from modifying your mortgage or loans. You may be surprised by what can be saved.