Do you need a loan modification?

There has been a lot of talk lately about loan modifications, and the current administration has been putting the pressure on banks, especially those banks who have accepted Federal government money, to help homeowners avoid foreclosure by modifying the terms of their mortgages. Loan modifications can be of great help to homeowners who have fallen behind in their payments, but it is important for those homeowners to do their homework first.

The first step homeowners need to take is to determine if a loan modification is the right choice. If the homeowner has already fallen behind and missed one or more mortgage payments that is a sure sign that a loan modification may be in order. In fact some banks are refusing to modify loans for borrowers whose mortgage payments are current – providing a strange (and risky) incentive for those homeowners to skip a payment or two.

But even if the homeowner has not fallen behind on the mortgage payments a loan modification may still be the way to go. Homeowners who are struggling to meet their monthly mortgage obligations without falling behind on their other bills may benefit from such a modification as well.

During the height of the real estate bubble many buyers took on more debt than they could afford, and when home prices slumped many of those borrowers found themselves struggling under an unsustainable burden. Homeowners who find themselves in such a situation may be able to benefit from a loan modification, whether that modification involves a lowering of the principal amount, a reduction in the interest rate or both.

Homeowners who have seen their adjustable rate loans soar may also be able to take advantage of loan modifications. The teaser rates for many adjustable rate mortgages have already expired, and many more are scheduled to reset in the coming months. Homeowners who were able to afford their payments when interest rates were artificially low but who are now having trouble making ends meet may also want to explore the loan modification option.

For more information, see: Loan modification FAQs