Loan modifications are changes to your loan agreement. Your payments are becoming more affordable, and you don’t have to take credit. Banks choose to offer loan modification programs because it is easier and cheaper to work with you than to navigate you.
Why do Banks offer loan modification?
If you stop making payments, the bank has several options.
- Attempting to return property (for example, house arrest)
- Attempt to collect (through salaries or bank payments), or hire someone to do so
- Set hope and accept the loss
- Make sure you file for bankruptcy and get little or nothing
Neither of these options is attractive to you or the bank. Your loan will suffer and the bank has financial costs. Banks are not involved in asset management, and you probably wouldn’t move again.
Is there another option? Yes – banks offer loan modification so they don’t have to do any of the above. A loan modification may be cheaper and more profitable for banks, but not in any case.
How do I get a loan modification?
You usually have to ask to get a loan modification. Call your lender and let them know your financial situation. Just be honest and explain whether or not you can make payments. Ask what options are available to you. If they see things the same way, you may qualify for a loan modification.
Banks have different criteria for approving a modification request, so there is no way of knowing in advance if you qualify – the only way to find out is to ask.
What types of loan modifications are there?
Banks can change the terms of your loan to make payment more affordable. These changes can be permanent or temporary.
In any case, the result is a more reliable payoff as you get back on your feet. For more details on logistics, read about the various loan modification options it can offer you.
With lower monthly payments, you can end up paying more interest over the years. If a loan modification keeps you in the short term, it can be worth the expense. However, make sure you know what it will cost you and that this is your best option – not just a way to release cash every month.
To make the process smoother, be prepared when you request a mortgage change. The bank will want proof that you cannot make payments. Compose the following items:
- Monthly income and details of where it comes from
- Monthly expenses, broken down by category (mortgage, food, transport, etc.)
- Banking statements
- Loan statements and agreements
By presenting a picture of your financial situation, the bank can more easily make a decision on your mortgage change.
How long does it last?
You should expect to spend a few hours of your time demanding a mortgage change. Wait on hold when you call, you will have to present your case and you will have to chase the documents and forward them to the bank.
It’s no small task.
When you request a mortgage change, you should expect to wait several weeks before the bank actually does anything. In the meantime, do what the bank tells you to do – for example, they may say that you need to keep making payments to qualify for a mortgage change.
Mortgage Change Assistants
Many businesses want to help you request a mortgage change. The price you pay for your services is steep – often as much as a monthly mortgage payment. You don’t need anyone to help you request a mortgage modification (your bank makes the decision based on your financial situation, not who is looking).
Moreover, you will need to provide the same information to the assistant as you at the bank. Just call your bank and ask what you need to do to change your mortgage.
If you want to pay someone for your time and guidance, that’s fine – just be aware that you don’t have to.