A mortgage loan modification can offer some relief for homeowners who are struggling to make mortgage payments by changing the terms of their loan. In fact, homeowners can lower their monthly mortgage payments just by modifying their loan with the loan’s lender.
If you want to make your mortgage payments more manageable by lowering your monthly payment, a loan modification is often the best way to do that. Depending on your situation, you may be entitled to a loan modification through your mortgage servicer that would lower your mortgage payments.
The loan modification process can be long and complicated, but the results are well worth it. At Denbeaux & Denbeaux Law, we have seen first-hand how homeowners have been able to come back from financial hardship or avoid foreclosure by making payments more manageable using a loan modification.
Contact Joshua Denbeaux today for a free consultation to see how a loan modification may be able to lower your monthly mortgage payments and keep reading to understand better if a loan modification is the right decision for you.
Loan Modification Basics
A home loan modification allows you to modify the original loan that you owe to your mortgage lender. This could mean reducing the interest rate, splitting the payments into smaller amounts, or extending the loan to reduce payment amounts.
You may wonder when you should get a home loan modification to lower your payments. Ideally, the sooner, the better, but we understand that not everyone has the knowledge and resources to get a loan modification with their lender before it’s too late. If you’re struggling to pay your mortgage because payments are too high, using a loan modification early can help you stay current and avoid foreclosure.
Here are some examples of times that homeowners should pursue a modification for their mortgage loan:
- When you can’t stay up-to-date on your mortgage payments
- When you receive a Notice of Intent (NOI) to foreclose on your home
- When you are facing an imminent default judgment
In many situations, you may be able to apply for a loan modification up until your home has been sold at auction, though every situation is unique. You may also find that your financial situation is not nearly as bad as you had first thought and might need to go a different direction. Fortunately, there are other resources that homeowners can take advantage of when monthly payments become too much to handle.
Loan Modification Vs. Refinance
A loan modification is not the only option homeowners have to help them manage their mortgage loans. They may also refinance an existing loan to obtain a brand-new one.
You can refinance your loan if you need to:
- Lengthen the term of your mortgage loan
- Shorten the term of your mortgage loan
- Lock in a lower interest rate
- Change the type of loan you have
Unlike with a loan modification, you don’t need to work with your original lender to refinance your loan. In fact, a refinance allows you to switch to a new lender if that’s what you want or need to do in order to get your preferred loan.
If you’re already struggling with making payments or have a poor credit history, you may not be eligible for a home refinance offer. You may also find that rates are much higher than your current mortgage and aren’t going to help a whole lot. You’ll also have to have more cash on hand to pay closing costs and origination fees, as well as more on the new refinanced loan.
While refinancing your home can be a good option if you want to get a new loan and have the financial resources to do so, a loan modification may be a better solution for homeowners who are at immediate risk of foreclosure. You should talk to an experienced attorney to understand which option may be best for you and your financial situation.
Loan Modification vs. Forbearance
A mortgage forbearance is an alternative to a loan modification. A forbearance agreement is an agreement between a homeowner and a lender that offers short-term mortgage relief.
During a forbearance period, mortgage payments can be reduced or suspended to help homeowners manage financial difficulties. After your forbearance period is over, you are responsible for making your delayed payments to bring your loan up to date.
With a loan modification, your loan is altered for the entire length of the loan to make the payments more manageable. With a mortgage forbearance, your payments are lowered or paused for a period of time, but once the forbearance period is over, you owe the total amount of missed or lowered payments.
A forbearance agreement is not a long-term solution. However, working with your lender on a forbearance agreement may be a good idea if you know that your financial difficulties are temporary and that your financial situation will return to normal soon. However, our foreclosure attorneys generally recommend against forbearance in most situations because the catch-up payments often put people into trouble.
Mortgage Repayment Plan
A repayment plan may be a good option for homeowners who have already missed mortgage payments. With a repayment plan, lenders typically spread overdue payment amounts over a period of time. During that time, you’ll have increased mortgage payments.
With a loan modification, your mortgage payments are lowered for the length of the loan to make your payments more affordable. With a repayment plan, your mortgage payments are increased for a period of time to get your mortgage current.
Getting a repayment plan could be a good option if you experienced short-term financial hardship but are getting back on your feet. Repayment plans can provide emotional relief as you work to get your mortgage out of default, but they require making consistent mortgage payments.
You should be aware of a few downsides when considering a mortgage repayment plan.
Most repayment plans include balloon payments. With a balloon payment, you’ll have a large payment at the end of your repayment period to bring your loan current. The balloon payment comes after you’ve paid a higher monthly mortgage payment for months, which can be a financial strain.
Getting a repayment plan can make it more difficult to get a loan modification or forbearance down the line. Repayment plans can limit your loss mitigation options for the future.
A repayment plan can add financial stress with higher monthly mortgage payments. A repayment plan may be difficult if you are still facing financial hardship. Other loss mitigation options, like loan modifications, can be better suited to lower monthly payments and reduce financial stress.
How Does a Loan Modification Lower Mortgage Payments?
Homeowners have a few options available to lower their monthly mortgage payments. It’s important to remember that your lender may not offer all these options, and some may not be the best fit for your particular situation. Generally, though, how a modification works on a mortgage loan is by:
- Lowering the interest rate. Your lender can reduce your loan’s interest rate, which will, in turn, reduce how much you’re required to pay each month. Homeowners may find this to be helpful if current interest rates are lower than when you got your original mortgage.
- Extending the term of the loan. By extending your loan, you’ll have more time to repay the mortgage. This also means that your monthly payments will decrease, making it much easier for homeowners who are unable to pay their current monthly mortgage.
- Changing the loan structure. If you have an adjustable interest structure on your mortgage loan, you may be able to change it to a fixed-rate mortgage. You can also ask about modifying your loan to a 15 or 30-year mortgage from other kinds, including balloon mortgages. This helps homeowners who are on a fixed income and need a more set monthly payment or who may not be able to make large payments.
Some homeowners can also qualify for government mortgage modification programs depending on the type of loan they have. These programs are aimed to help offer relief for struggling homeowners but aren’t available for everyone.
To better understand how you can lower mortgage payments, speak with a loan modification attorney. A lawyer can help guide you through this complicated process and may be able to negotiate with your lender to get the loan modification terms that you need.
Work With a Loan Modification Attorney To Lower Payments
Getting a loan modification is easier now than ever with the help of the new CFPB rules, requiring lenders to put forth their due diligence to help homeowners going through financial hardship. Make sure you have the help you need to guide you through the loan modification process and get the terms you deserve with the help from Denbeaux & Denbeaux Law.
Call today to set up a free consultation and find out how an experienced loan modification attorney like Joshua Denbeaux may be able to help you get a loan modification, save your home from foreclosure, and make future payments more manageable.
