The term Loan Modification means changing or modifying the terms of an existing loan. It is not a Refinance or Refi per se which is a New Loan usually done to pull cash out of the equity in a house or to get a better interest rate than the existing loan but its effects are similar.
Loan modification involves an existing loan and allows the home owner to renegotiate their home loan and to find terms to the mortgage that are beneficial not only to the home owner, but to the banks. Loan modification can help demonstrate to the lender that you want to save your home and help to work out some type of plan that will in turn resolve the dangers of foreclosure. Loan modification allows homeowners and lenders to change the terms of a loan in order to help the borrower stay in the home and avoid foreclosure. It is a process that must be understood completely and thoroughly.
The sad reality is that there are possibly legions home owners who are in dire straits with their own mortgages and are considering foreclosure or looking for other ways out. The key factor to being accepted into the saving graces of the lender is to prove beyond a doubt that you are suffering from some type of hardship. A hardship is what can help you to achieve a loan modification and in turn save your home from plummeting into foreclosure. Home loan modifications are established for homeowners just like you who have lost your job, had a decrease in your income or are suffering from a hardship that may be keeping you from work.
Loan modification programs are very popular in today’s economy. Generally this is in the form of a lower interest rate with a fixed loan program. Since many of the programs do vary in how they work, you should contact your lender and advise them of your hardship and get more information. Each mortgage lender or servicer will have different loan modification programs and processes. As mentioned before, loan modification programs are just becoming mainstream and therefore there is little standardization. Make sure that you take the time to educate yourself so you can take advantage of the billions of dollars in homeowner assistance programs now being offered.
Loan modifications used to be reserved for borrowers whose mortgages became delinquent because of job losses, divorce proceedings, or illness, but today they are also open to those individuals who are suffering in the aftermath of adjustable rate mortgages skyrocketing and placing the monthly payment beyond the means of the borrower. The loan servicer can use several methods to achieve lowering of the payment such as reduce the interest rate to as low as 2%, extend the terms of the loan (possibly up to 40 years), forebear loan principal at no interest. Forbearance is a negotiation process with your mortgage lender to work out the delinquent payments you have not paid due to your financial hardship. The most common loan modifications are lowering the interest rate, reducing the principal balance, ‘fixing’ adjustable interest rates, forgiveness of payment defaults & fees, or any combination of these. It is unknown how long these government assistance programs and loan modification programs will last.
A person could, pull cash out of the equity; however it would not come in the form of a lump sum as in a refinance. A person may recover from his hardship and get a better job and higher income. His expenses would still be lower. The net difference in this scenario, over time, if managed correctly, could present the future existence of new capital to either pay down the mortgage or invest in opportunities for more income or for whatever else one might use an equity draw.
Due to these government assistance programs, the time has never been better for property owners to take the initiative and apply to have their loans be modified towards better terms and a lower interest rate. It is exalted as the principle solution to prevent foreclosure rates from achieving alarming heights. A loan modification will decrease your monthly payments, lower your interest rate, avoid foreclosure, save your home and in the long run possibly put cash in your pocket.