How Do I Know if Loan Modification is Right for Me?

You’ve worked hard your whole life, scrimped and saved, all so you could provide a home for yourself and your family. Finally the grand day comes — the day you become a proud homeowner. It might not be a dream home to most folks, but to you it’s a castle, your pride and joy, your most valuable — if not your most precious — possession.

Times were good when you made the purchase. You got great terms on your mortgage, and since that time you’ve enjoyed the benefits and pride that come with home ownership. But now the dark clouds of a down economy threaten to take it away.

Perhaps you’ve fallen on hard times with the loss of a job or a second income that you had come to rely on. Maybe the great rate you got on your ARM is getting ready to, or already has, increased beyond affordability. Or you might have missed payments on a few other bills in order to keep up with your house payments and you just aren’t sure how much longer you can keep it up.

Or things might even be fine for now, but you stretched your budget in order to live the dream of home ownership and are looking to lower your payments so you can start building up your savings.

Whatever your reason, loan modification may be the answer you’re looking for. Loan modification helps troubled homeowners keep their homes by adjusting a mortgage to make it more affordable. It’s a way to save money, but more importantly it’s a way to save your home.

So how does a loan modification work? The details are likely to be boorish to all but the likes of financial geeks. But, with the right people helping you, details are something you won’t need to worry about. What is important is knowing the type of loan modification that can and will be done for you. The more you know about the different ways your mortgage can be adjusted, the better equipped you’ll be to make the right decision for yourself and your family.

Common Types of Loan Modification

Loan modifications can range from the simple — like lowering your interest rate — to the more complex — like negotiating a lower payoff balance, rolling up other bills into your mortgage, extending the term of the loan, and more. Here’s a quick look at some of the most common loan modifications you’re likely to come across:

Lowering the Interest Rate — This is one of the more popular types, and may be something you’ve gone through already. If your interest rate is already low, then this option may only be enough to save you a hundred dollars or less per month. In such a case, additional options should be considered.

Extending the Term of the Loan — This works best if you’ve been in your house for at least a few years. One way to look at this is that you are taking out a loan to buy your house from yourself for the amount of the principle balance. The new loan resets to the original term (or longer in some cases), thereby lowering your payment.

Negotiating a Lower Principle Balance — For this option to be a serious consideration, your home value must have dropped to the point that you owe more than its current market value. This puts the bank in a position where it would be better for them to accept less money from you rather than going through the hassle of foreclosure and potentially losing more money trying to resell the home.

There are many more options in the field of loan modifications. The ones that are available to you depend on your specific circumstances. To learn more, talk with a loan modification expert. They’ll be able to assess your situation and negotiate with your bank on your behalf to get you the best results possible.