About Mortgage Modification

Facing foreclosure can be overwhelming and scary, but by taking the right steps you may be able to keep your home and save your credit. The following information is provided to help give you a better understanding of mortgage modifications.

A mortgage modification is one of the best options available for struggling homeowners and lenders alike.

A mortgage modification is beneficial to the borrower because it allows the individual or family to remain in their home and grants them mortgage terms that work better for their particular life style or situation. A mortgage modification in comparison to foreclosure, bankruptcy, or some of the other options, allows the borrower to keep their credit score intact.

Mortgage modifications are also beneficial to banks and lenders, especially with foreclosure rates sky rocketing in the last few years. Banks lose a lot of money in a foreclosure. Not only does it cost money to go through with a foreclosure but it often results in an overall loss for the banks, as the homes often sell for less than they are worth, or less than the outstanding mortgage amount itself.

In a CNN report on March 6, 2008 Bob Moulton of America Mortgage said, Its cheaper for a bank to renegotiate payments than to chase someone and miss out on monthly mortgage payments. This is entirely true; banks lose over 50 cents to the dollar on homes that are sold through foreclosure auctions.

Mortgage modification is a long-term solution that will help the borrower make their mortgage payments and stay in their home. This can be accomplished by:

• decreasing the interest rate
• changing from a variable to a fixed rate mortgage
• extending the term of the mortgage (the period of time the borrower has to pay the mortgage back)
• switching to a different type of mortgage altogether

Some forms of mortgage modifications are more easily obtained than others. One of the easiest ways to modify your mortgage is to ask for a decrease in the interest rate. Most lenders are willing to aggressively decrease interest rates for qualified applicants. A decreased interest rate can save you anywhere from a few hundred to a thousand dollars every month; this depends on the amount of your mortgage.

Lengthening your mortgage is another way to modify, which is often not too difficult to have a lender carry out. By increasing the number of years you have to pay off a mortgage a homeowner can decrease their monthly payment by a couple hundred dollars. However, it should be noted that this option increases the overall amount of the repayment as extra interest accrues over the extended period of the mortgage.

A principle balance reduction is the most difficult mortgage modification to obtain. This involves the lender forgiving a portion of your debt. It is very difficult to get a lender to agree to this type of modification, because the lender has to report that money as a loss on its balance sheet and the purpose of the mortgage modification is to minimize losses.