Mortgages
Loan Modifications and Their Role in Debt Consolidation
For many people, the chance to own a home represents a milestone in life that’s often worked towards for many years before it is achieved. However, tough economic times have caused some people to feel that debt is even more of a possibility as they try to shoulder the burden of their mortgage. It’s becoming quite common for people to consider loan modifications as an option in their debt consolidation process. If it’s something you’re considering, it’s important to be informed.
What Are Loan Modifications, And How Can They Help With Debt Consolidation?
As the name implies, a loan modification is a change in the terms of the mortgage. Once an alteration of terms is agreed upon, the mortgage is reinstated. The goal is to make a change that ultimately helps the mortgage payer feel more able to handle the necessary monthly payments.
Since debt consolidation combines all of a person’s debt into one location, and a single periodic payment, it can help reduce interest rates and monthly payments when done correctly. When efforts are made to make a person’s overall debts easier to handle, it’s easy to see why loan modifications are often done as part of debt consolidation methods.
Possible Types of Loan Modifications
Although some people feel embarrassment upon realizing that they’ve fallen behind on their mortgage payments, it’s actually a lot more common than you might think. Fortunately, loan modifications can take many forms to fit a person’s unique financial situation. Some examples include increasing the amount of years that the mortgage payments will be in effect, reducing the interest rate, or converting an adjustable rate mortgage into one that is a fixed rate. If you feel that a loan modification might be a good option in your attempts to consolidate your debt, you can get more information about loan modifications to find out if it’s right for you.
Should You Deal with a Bank or a Mortgage Broker?
If you want to buy a house, you’ll need a mortgage. The right mortgage is important and those who take the time to find the right one are: more likely to get approved, more likely to get a reasonable interest rate, and be more likely to have payments they can afford.
There are a lot of options available for financing your home. Some people automatically visit their bank, because they have a relationship with them but if you only see your bank’s loan officer, you’re not doing your due diligence and ensuring you’re going to get the best deal. A mortgage broker could be a better option for you based on the following scenarios. It’s not easy to get approved for a mortgage in the current economy and working with a mortgage broker could work to your advantage from an approval and a pricing perspective. Many who are turned down by their bank, or who get really high quotes turn to a mortgage broker and find a world of difference in how much easier the process is.
Bad Credit Mortgages
Do you have less than pristine credit? A mortgage broker works with you and typically has several sources that they can use for financing so they’re able to submit your application to a financial company that is likelier to approve you than your bank, who may only be willing to work with someone with perfect credit.l
Home Loans for Self Employed
Those who work for themselves often find it difficult to obtain a traditional mortgage because they can be seen as a risk to some financial institutions. A mortgage broker can help you.
Mortgage brokers will often come to you and go through your options based on several scenarios. They may have several companies willing to lend to you or may be able to help you work to get approved at a slightly higher interest rate or larger down payment. Before you finance your home, consider at least talking to a mortgage broker to see what they can offer you.
Options For Homeowners Facing Foreclosure
Surely by now everyone has heard of the latest government programs addressing the sub-prime mortgage crisis; they may even realize that there are loan modification companies out there to aid in restructuring the terms of their mortgage. What most consumers do not know is exactly how the process works and what to expect during the process.
One thing that homeowners need to realize is that expecting their mortgage servicer to be on their side and patiently walk them through each step to freedom from foreclosure is a naïve, and even dangerous, supposition.
The Mortgage Crisis Spin
The U.S. government has put quite a spin on their efforts to resolve the current crisis regarding sub-prime mortgages. Television networks and news reports have jumped on the bandwagon, urging consumers to call their mortgage company and keep their home. They are all proponents of do-it-yourself loan restructuring, advertising the process as quick, easy and fail-safe.
What they are not being completely honest about is that a mortgage loan is a legal document. As such, the homeowners who signed it are legally bound and obligated to pay it back under the terms it was written. Attempting to restructure the loan without professional advice and the correct legal information can actually result in creating a worse situation for the struggling homeowner – and oftentimes the loss of the property anyway.
Do Your Homework and Get Help
The good news is that there is a lot of help for homeowners available and loan modification companies to help them. The first step in the process of negotiating new terms for a mortgage begins with research and preparation. Do your homework.
If you are currently delinquent in your loan payments, start by determining if this has resulted in extra and undue fees being added to the amount due. Usually these fees, which can range in the tens of thousands of dollars, will be added without your knowledge. You must know exactly what you are dealing with in order to turn around the situation.
The next thing you must research is the exact wording of your mortgage document and the black-and-white terms. There are some mortgage servicers who will attempt to stretch the definition of terms and take advantage of homeowners who do not understand the legal jargon. As well, the loan itself is probably not held by the financial institution you originally dealt with; it has probably been sold time and time again – an important consideration.
Threats to Do It Yourself Modifications
If you are considering going through the process of the mortgage modification process without benefit of legal counsel, be aware of some of the drawbacks.
Number one is that many times the mortgage servicer will add a release of liability clause to the new terms. This means that the homeowner is signing away the right to ever take legal action against the loan company, no matter the circumstances.
Unfortunately, the mortgage company truly does not care about the plight of the homeowner. They are looking out for themselves. The fact is, many of the consumers who go through a restructure of their loan end up in foreclosure within six months after the new mortgage has gone into effect.
Using loan modification companies as your advocate to prevent foreclosure is highly recommended. These firms have the knowledge and resources to investigate what company truly holds the mortgage and how to best deal with them and respond appropriately to the legal ramifications. If you are facing foreclosure, this is no time to try to do it yourself and risk losing even more.