Future of Your Mortgage | Loan Modification Part 9

After your personal loan is altered

Fannie Mae holds the most mortgages in the United States.

By now you know that Loan Modification and Refinancing are achieved through lowering the interest rate on a mortgage. The federal foreclosure prevention plan says bankers and other lenders can lower the interest rate on a  mortgage to 2 percent in order to get payments low enough.

How low is low enough?

The lender reduces the interest rate until payments are only 31 percent of the borrower’s income, after the government pitches in its share. However, that 2 percent interest rate won’t stick around forever.

Interest rate terms

The new interest rate negotiated with your borrower will stay locked in place for five years. After the five years is up, the interest rate will slowly start to climb back up to the original interest rate on your mortgage.

However,  if your interest rate is higher than the prevailing interest rate available at the time you modify your loan, the rate will only climb up to the prevailing rate. Right now that is in the neighborhood of 5 percent.

Slow and steady

The interest rate will not suddenly jump back up to a normal rate after five years. Instead, it will climb at a rate of 1 percent per year until it is up to the rate where it will stay until the mortgage is paid. For some people, that could be up to 40 years because the federal program allows for mortgage terms to be increased to that length.

Get caught up

In case you missed it, Loan Modification Part 1 and Part 2 talked about eligibility requirements for the federal foreclosure prevention plan. Part 3 goes into detail about providing proof of hardship. Part 4 discusses how the federal program works. Part 5 warns about mortgage aid scams.

Part 6 discusses who is not eligible for the program. Part 7 talks about renters whose landlords get foreclosure notices. Part 8 contains details about deadlines to apply for foreclosure prevention.

The final part of this series, Loan Modification Part 10, discusses debt counseling.