Mortgage Modification Programs And Options
You might qualify for a government modification program depending on your mortgage type and circumstances. Different options are available for borrowers with Fannie Mae, Freddie Mac, FHA-insured, VA-guaranteed, and USDA mortgages.
For instance, you might qualify for a Fannie Mae or Freddie Mac Flex Modification if you have one of those kinds of loans. Investors are free to offer their own in-house modification options, too, called “proprietary” modifications.
Laws That Help Homeowners in the Modification Process
Because of loan servicing problems that arose during the great recession, new rules and laws designed to protect homeowners in the modification process came about. Federal mortgage servicing laws, which went into effect on January 10, 2014, protect borrowers in the loss mitigation process.
Also, some states, like California, have passed a Homeowner Bill of Rights, which regulates how servicers handle modification applications. Nevada, Colorado, and Minnesota, for example, also passed similar laws.
Who Qualifies For A Mortgage Loan Modification
Mortgage modification programs vary from one lender to the next, and not everyone qualifies. Generally, you must provide evidence of financial hardship due to one or more of the following reasons:
- Increase in housing cost
- Long-term disability or sudden illness
- Loss of income because of the death of a family member
- Loss of property not insured
- Health pandemic
- Your mortgage has been modified no more than three times in the past
Roll Late Fees Into The Principal
If you have accrued past-due charges on things like interest, late fees or escrow, some lenders will add that to your principal balance and reamortize the loan. That means the amount you owe will be spread out over time with the new balance. If you extend the length of your loan, you might end up paying less in monthly payments even though you owe more toward your principal.
Don’t Miss: Does Credit Score Affect Mortgage
What Is A Home Loan Modification
If youre experiencing a financial hardship, a loan modification may help make your monthly home loan payments more affordable.A loan modification may add any interest, escrow, fees, and expenses that are due into the remaining principal balance of your loan. Depending upon your type of loan, this may involve extending the term of your loan, lowering your interest rate, and/or deferring principal, as needed, to achieve an affordable payment.
Switch From An Adjustable
Switching from an adjustable-rate mortgage to a fixed-rate mortgage might not lower your existing payments, but it could help protect you from rising interest rates down the road.
Since ARMs are set up to have floating rates, they change with the market. For example, if your interest rate is 3.5% and the average rate rises to 4%, so will your rate. This can be a bad scenario if youre in a rising-rate environment. By locking in your interest rate, youre guaranteed to pay the same interest rate over the life of your loan, regardless of what the market does.
You May Like: Is 5.375 A Good Mortgage Rate
Reduce The Interest Rate
Shaving your interest rate can reduce your monthly mortgage payments by hundreds of dollars. A $200,000 mortgage payment with an interest rate of 4% on a 30-year fixed-rate loan is about $955 per month, compared to the same loan with an interest rate of 3%, which comes out to $843 per month.
This is similar to refinancing your loan, but the difference is that you dont have to pay closing costs or fees.
What Is A Loan Modification
A loan modification is a change to the original terms of your mortgage loan. Unlike a refinance, a loan modification doesnt pay off your current mortgage and replace it with a new one. Instead, it directly changes the conditions of your loan.
Its also important to know that modification programs may negatively impact your credit score. If you’re current on your mortgage, it would be better to review your options and see if you can apply to refinance.
You can only get a loan modification through your current lender because they must approve the terms. Some of the things a modification may adjust include:
- Loan term changes:If youre having trouble making your monthly payments, you may be able to modify your loan and extend your term. This gives you more time to repay your loan and reduces the amount you must pay every month.
- Interest rate reduction: If interest rates are lower now than when you locked into your mortgage loan, you might be able to modify your loan and get a lower rate. This usually lowers your monthly payment.
- Loan structure changes: You may be able to modify your loan from an adjustable interest structure to a fixed-rate loan. This can be beneficial if you now live on a fixed income and you need a more predictable monthly payment.
Recommended Reading: How Are Mortgage Approvals Calculated
How Do Loan Modifications Affect Your Credit
The impact that a mortgage modification has on your credit could be minimal if your lender doesnt classify the change as a type of settlement when reporting it to credit bureaus. You might even see your increase slightly because your monthly housing costs are going down, but thats not very common.
You should probably prepare for the more likely scenario in which your lender does report your loan modification as a settlement or adjustment. In that case, you would almost certainly see a negative impact on your credit.
Heres the thing, though: Whatever dip in credit score you experience as a result of a loan modification will likely be only temporary. As you get a handle on your mortgage payments and settle into spending habits that fit your income level, your credit situation should sort itself out.
Also, any hit to your credit as a result of a loan modification will pale in comparison to the fallout from defaulting on your mortgage. If you have to pick one of those two options, the choice is crystal clear.
Current Mortgage Rates For Jan 16 202: Rates Slip
Today some major mortgage rates declined, though rates are high compared to a year ago. See how your payments might be affected by inflation.
A few important mortgage rates went down today. The average interest rates for both 15-year fixed and 30-year fixed mortgages slid. For variable rates, the 5/1 adjustable-rate mortgage also ticked downward.
Mortgage rates increased dramatically in 2022, as the Federal Reserve hiked interest rates repeatedly throughout the year. Interest rates are dynamic and unpredictable — at least on a daily or weekly basis — and they respond to a wide variety of economic factors. But the Fed’s actions, designed to mitigate the high rate of inflation, had an unmistakable impact on mortgage rates.
The outlook for 2023 remains uncertain. Though higher rates are likely here to stay, the biggest increases may be behind us. That noted, trying to time the market is tricky. If inflation persists, more interest rate hikes could follow. As such, you may have better luck locking in a lower mortgage interest rate now instead of waiting after all, you can always refinance later on. No matter when you decide to shop for a home, it’s always a good idea to seek out multiple lenders to compare rates and fees to find the best mortgage for your specific situation.
Recommended Reading: How To Apply For A Home Mortgage
A Skilled Attorney Can Help
While most lenders do offer loan modification programs, such programs are often designed to benefit the lender more than they benefit you. With the help a qualified loan modification attorney, you can avoid being taken advantage of in your time of hardship. Our lawyers will work hard on your behalf to help you get the positive outcome you need and the second chance that you deserve.
For more information about how we can assist you with a mortgage loan modification, contact our office. Call 847-549-0000 for a free phone consultation at Newland & Newland, LLP today. With five offices throughout the region, we serve clients in Libertyville, Waukegan, Vernon Hills, Mundelein, Gurnee, Lake Bluff, Grayslake, North Chicago, Arlington Heights, Lake County, and surrounding areas.
Make More Frequent Mortgage Payments
The most straightforward way to pay off a mortgage faster is by paying more than you have to.
When people first start making mortgage payments, almost all of the money they are paying goes to cover their interest rates. Only after many years of doing this do mortgage payments start to pay off more and more of the principal amount of the loan.
However, when you make an extra mortgage payment, all of the extra money you pay goes straight to paying off the principal loan amount. The earlier you make extra mortgage payments, the bigger the effect they have on the total amount you will pay for your mortgage.
Another great thing about this strategy is that it is flexible. You might think that you can pay a higher amount for your mortgage every month until it is paid off ahead of schedule. However, as things come up, it might turn out that you need a little extra money for expenses here and there.
Using this strategy, you will be able to update your initial plans and forgo an extra mortgage payment whenever you need the money.
Recommended Reading: How To Pay Off My Mortgage In 15 Years
How We Make Money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout lifes financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
Were transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.
Qualify For A Mortgage Loan Modification: The How
To qualify for a mortgage loan modification, you must be at least one mortgage payment behind, and you must provide evidence of financial hardship, such as an illness or a disability.
Your first step should be to contact your lender. Theyll walk you through their specific process for figuring out if you qualify.
Don’t Miss: What Is Reverse Mortgage Meaning
Who Can Get A Mortgage Loan Modification
Eligibility requirements for mortgage modifications vary from lender to lender, but you typically must:
- Be at least one regular mortgage payment behind or show that missing a payment is imminent.
- Provide evidence of significant financial hardship, for reasons such as:
- Long-term illness or disability
- Death of a family member
- Natural or declared disaster
- Sudden increase in housing costs, including hikes in property taxes or homeowner association fees
Refinance Your Mortgage Loans
When you refinance your mortgage, you get a new loan that replaces your original one. Your new loan will have new terms. If you are willing to pay higher costs, then you can negotiate a new loan with a higher monthly payment.
Keep in mind that this strategy is less flexible than the previous one. If the time comes when you do not have the money you need to pay for a higher mortgage amount, then you will start to become late on your payments. That makes this a better strategy if you are certain that you will always have enough money to pay a higher mortgage amount than you have right now.
Recommended Reading: Can You Put Renovation Costs Into Your Mortgage
Mortgage Loan Modification Faq
What happens when you get a loan modification?
The goal of a loan modification is to help a homeowner catch up on missed mortgage payments and avoid foreclosure. If your servicer or lender agrees to a mortgage loan modification, it may result in lowering your monthly payment, extending or shortening your loans term, or decreasing the interest rate you pay.
How do I get a mortgage loan modification?
Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more.
How long does loan modification last?
Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor. Once your loan modification has been approved, the changes to your interest rate and loan terms are permanent.
Does loan modification hurt your credit?
A mortgage loan modification under certain government programs will not affect your credit. But other loan modifications may negatively impact your credit and show up on your credit report. However, since your mortgage usually must be in default to request a modification, your financial difficulties are probably already on your credit report, explains attorney Elizabeth Whitman.
Can you be denied a loan modification?How much does mortgage modification cost?
How To Get A Loan Modification
As a general rule, the first step is to call your lender . It can explain the process, which should begin with a written explanation of your situation .
Before you start the process with your lender, consider contacting a real estate attorney. According to David Reischer, an attorney and the CEO of LegalAdvice.com, A consumer will be more likely to negotiate a loan modification if they contact a reputable foreclosure defense attorney. Foreclosure defense attorneys are in the best position to review the original loan documents and work with the lender.
A real estate attorney can help you effectively negotiate a loan modification to get the terms you need.
There is always the possibility of being denied. Generally, this happens when the lender determines your current financial situation may continue for a while and you may not be able to afford even reduced monthly payments.
If youre denied a loan modification, you do still have some options. First, you can file an appeal with your loan servicer, but you must send it within 14 days of receiving the initial loan modification decision. The servicer is obligated to assign the review to an individual who wasnt involved in the decision and give you a written response within 30 days, according to the Consumer Financial Protection Bureau.
Don’t Miss: How Often To Refinance Home Mortgage
History Of Mortgage Loan Modifications
Negotiations with mortgage lenders was always an option for homeowners having difficulty with their mortgage. Mortgage loan modifications were always one of the options for borrowers in arrears but until the recession of 2008-2014, this was not a popular option, that was routinely suggested and frequently offered by lenders. Therefore, it was not a regular option for borrowers in arrears until the severity of the last recession, which was mortgage loan driven, and caused the Federal government and lenders to offer Mortgage Loan Modifications as regular options to be considered in most mortgage loan foreclosures. In early 2009 due to what was clearly a foreclosure crisis, the federal government enacted the Making Homes Affordable Program and other related programs to encourage private mortgage lenders to modify the mortgage loans of qualified homeowners undergoing hardship with their mortgage payments. Most mortgage lenders incorporated the HAMP program and reviewed a loan for a modification under HAMP criteria. Also, because of political pressure on banks and mortgage lenders, and because the HAMP programs were complicated by government administrative requirements and oversight, many banks had instituted their own in-house, non-HAMP mortgage modification programs, in addition or instead of HAMP.
When Might You Qualify For A Loan Modification
- Drop in income level, usually as a result of a salary decrease or change in employment
- Debilitating injury or illness that affects your job prospects
- Dissolution of marriage where both parties share housing costs
- Unexpected increase in housing costs, such as a dramatic change in assessed property taxes or homeowners association fees
- Death in the family that impacts the households income
- Extensive property damage caused by natural disasters or otherwise not covered by insurance
- Public health crisis think: the COVID-19 pandemic
Keep in mind that the lenders goal here is to help you repay your loan, not absolve you entirely of your financial responsibilities. Mortgage lenders arent going to offer a loan modification if it seems unlikely the borrower will be able to repay the loan even with those changes. So, if you lose your job and you dont have any income coming in to pay your home loan, a mortgage modification could be a pretty hard sell.
Don’t Miss: What Is The Cost Of Mortgage Insurance
There May Be Other Options To Save Your Home
Mortgage modifications aren’t the only option you have to prevent foreclosure. If your financial circumstances are temporary, then your lender may be able to offer you a mortgage forbearance. This is a temporary pause or reduction in payment amount instead of modifying the loan permanently. These programs are specifically for those who have only a temporary change in their circumstances but will be able to resume their regular repayments after a short period of time.
If you can restart your normal mortgage payments again after missing one or two, then you may be better off setting up a repayment plan with your lender. Instead of modifying your loan, your lender can increase your payment amount temporarily until you’ve made up the payments you missed. After that, your payments would go back to their regular amount.
Contacting your lender as soon as you know you aren’t going to make a payment is best. This helps them find the right option for your circumstances.
