A loan modification is an agreement with your lender to adjust the terms of your loan, making it more manageable for you to pay. Many homeowners consider this a solution when they struggle to keep up with their mortgage due to sudden financial hardship, such as from a job loss. However, loan modification may not be suitable for every circumstance.
Below, we discuss the general pros and cons of loan modification. For legal help specific to your case, please speak with experienced loan modification attorney John D’Amato.
Advantages of Loan Modification in New York State
The most obvious benefit of modifying your loan is that it can lower your monthly bill, helping you pay what you owe and prevent foreclosure on your home. A modified loan can also bring your payments up to date, as the lender will typically move your past-due amounts to your remaining debt balance.
A loan modification works through any of the following, or a combination of these:
- Extending the life of the loan. Your lender may stretch out the length of your loan term so that you’ll pay less each month.
- Lowering the interest rates. Some lenders agree to cut the interest rate, especially if they’ve also agreed to extend your loan term. This is helpful because if you’re paying over a longer period, more interest could accrue. Lowering the interest rate makes that more manageable for you.
- Forgiving previous interest. In a few cases, the lender may forbear (forgive) some of the interest you owe.
- Lowering the loan principal. In rare situations, the lender may reduce the principal amount of your loan.
For many people, a modified loan with lower mortgage payments is more than just financial relief. It also provides peace of mind and a sense of security as it halts the possibility of foreclosure. However, before contacting your lender about your eligibility for loan modification, you should be aware of its potential disadvantages.
Disadvantages of Loan Modification in New York State
These are the potential downsides of modifying your mortgage loan:
- Your debt will take longer to pay. In a traditional loan modification where the lender only extends your loan term, you’ll be spending more years paying each month.
- Interest will accumulate. The longer the loan takes to pay, the more interest you’ll accrue. It would be better if your lender also lowers your interest rate, but even then, you’ll have to negotiate for a rate that will still be amenable for you in the long run.
- The modification may hurt your credit score. If the lender reports your loan modification as a failure to honor the original terms of your loan, it can damage your credit score. Some lenders, however, report loan modification as “paid as agreed” to avoid this negative impact. You’ll want to ask your lender about their credit reporting before you modify your debt.
Alternatives to Mortgage Loan Modification
Other methods of managing your mortgage may be helpful to you. Consider the following:
- Forbearance. A short-term solution, forbearance is an arrangement where the lender agrees to suspend or reduce your monthly payments for a certain period. During this period, the lender won’t initiate foreclosure. After the forbearance period, however, you’ll have to make up for the skipped amounts through a lump-sum payment or a repayment plan.
- Refinancing. Refinancing is different from loan modification because it’s not just changing your current loan – it’s starting a new loan altogether. Typically, homeowners take out a new mortgage to pay off their existing one. The major drawback is that refinancing requires a certain level of income.
- Short sale. This means selling your home for a price that is less than the balance on your mortgage. You need prior approval from the lender to do this, because it will likely require them to forgive the remaining balance that won’t be paid through the sale. For you, the borrower, a short sell can prevent foreclosure and protect your credit score. However, it can have tax implications, so consult an attorney or tax professional if you’re thinking of short selling.
Each option to prevent or stop foreclosure will have its pros and cons. Whether you are considering loan modification or any other method, it’s wise to get legal guidance to find a strategy that suits you best.
Call John D’Amato, Buffalo Foreclosure Defense Lawyer
If you’re facing the threat of foreclosure or dealing with a foreclosure lawsuit in Western New York, contact John D’Amato for top-notch legal help. In the last 30 years, residents in the Buffalo area have trusted Mr. D’Amato for excellent foreclosure defense strategies. He has helped numerous homeowners manage their mortgages, face their creditors, and safeguard their homes.
Your consultation is free and confidential. Call John D’Amato at (716) 703-9099 today.