If you are having trouble paying your mortgage, you might want to look into mortgage loan modification. Coronavirus has caused many people to face financial troubles and those in forbearance are also good candidates for mortgage loan modification. Even if you aren’t falling behind on your mortgage, learning about mortgage loan modification is still a good thing to do if you are a homeowner.

What is mortgage loan modification?

Loan modification is when a lender agrees to change the terms of a mortgage to help them avoid default and allow them to keep their home during times of financial distress.

The goal of a mortgage loan modification is to lower the borrower’s payments so the loan becomes more affordable on a month to month basis. This is usually done by lowering the mortgage rate or extending the term of the loan. It is important to keep in mind that a mortgage loan modification does not replace your existing loan, it simply just restructuress the loan in order to make it more manageable for you. Another way a borrower can take advantage of mortgage loan modification is switching from an adjustable rate mortgage to a fixed rate mortgage and rolling any late fees into the principal.

Loan Modification vs Refinance

Some people think that when they fall into trouble with their mortgage, the first thing they should do is refinance. There is a difference between the two and that is mainly refinancing can replace your original loan with a new one, generally with a lower interest rate. When it comes to refinancing, not everyone is able to qualify, especially those enduring a significant financial hardship. This is usually because they may have trouble qualifying due to a reduced income, lower credit score, or unexpected bills or expenses.

Loan Modification vs Forbearance

Another way homeowners can find assistance during times of financial difficulty is through forbearance. This is a temporary plan that puts a hold on mortgage payments giving the borrower time to regain financial stability. During uncertain times like this past year, many homeowners were not sure when they would be able to make a mortgage payment due to reduced income or losing their job.

Forbearance is a permanent plan that changes the rate or terms of a home loan which is different from loan modification. In some circumstances, these two can be combined to make a relief plan that works more efficiently for the homeowner.

Is a Loan Modification Right For Me?

In order to qualify for a loan modification, the borrower usually needs to have missed at least three payments and be in default. Although a borrower who is under financial duress can qualify for a modification, not everyone in default is eligible. For example, if a borrower is so severe, they don’t see themselves being able to recover, they will not be eligible for a modification.

Reach Out Today!

If you are concerned about your mortgage or just have questions about your options if you were to need to refinance, feel free to reach out to our team. We’re here to help in any way we can, so give us a call at North Star Mortgage Network today!