Using Loan Modification to Stop Foreclosure

Facing threat of foreclosure?

If you believe you might be facing the threat of foreclosure then it’s not too late to save your family’s home. Mortgage holders who are more than 90 days in arrears on the mortgage repayments are able to apply for a loan modification that can help to stop foreclosure proceedings.

This means people suffering under financial hardship who are actively struggling to keep up with repayments may be able to apply for a loan modification that could potentially reduce your monthly payments, extend the term of your loan and even lower your interest rates.

What is Loan Modification?

A loan modification is a permanent change of the terms and conditions on your contractual mortgage agreement between you and your lender. When you originally applied for your mortgage, you agreed to specific terms and conditions that included the repayment amounts, the interest rates and how long the loan would run.

In the interest of helping you catch up your delinquent payments and get you back on track, your lender may be willing to modify your mortgage.

Why Would My Bank Offer Me a Loan Modification?

Regardless of all the negative talk on the news, banks don’t actually like to foreclose on people’s homes. Banks are in business to make a profit on the money they allowed you to borrow. They’re not in business to sell real estate.

This means that they actually make more money by charging you interest for as long as possible rather than paying for the associated legal costs of trying to foreclose on a house that they’ll then need to sell at a loss in order to get a portion of their own money back.

Obviously it’s in their own interests to try and help you to get yourself back on your feet financially so you can continue to keep making your mortgage repayments so they can keep making a profit.

How Can I Apply For A Loan Modification?

Your lender will want to review your application for a loan modification in writing. The bank’s loss mitigator doesn’t want to hear how bad your situation was. All they want to know is that you’re working to improve it and what they can do to help you get back on your feet financially.

It’s important you write down an accurate list of the repayments you’re expected to pay on your mortgage, personal loans, credit cards and any other outstanding bills you may have. Then you’ll need to add up your total household income and add this to your application.

If your income has been significantly reduced recently due to being laid off from work or from an illness, then do make sure you mention this fact in your loan modification application as it is an important aspect of why your repayments are delinquent.

Point out to your bank that if they approve your request to have your loan modified and reduce your monthly repayments then you’ll have a much better chance of keeping up with the lower payments they expect.

How Does a Loan Modification Stop Foreclosure?

When your bank agrees to modify your loan, they have entered into an agreement with you to help you re-establish your financial situation. This means that even though your mortgage may still be delinquent they won’t foreclose on it while you remain diligent within the terms of your new agreement.

Unfortunately if you leave your application for a loan modification too late, you could find that foreclosure proceedings may have already begun. If you know you’re already behind on your payments and you’re struggling to catch up, you should consider the option of loan modification before foreclosure proceedings begin. If you need to stall one more month, a good option might be unsecured personal loans, to keep you in your home and out of foreclosure.