January 24, 2022

Everything You Need to Know About Mortgage Modification

For most American households, a mortgage is the only way to obtain the keys to their own home. But after becoming homeowners, the challenge of managing high monthly payments and everyday expenses or major life changes can make life difficult for them. 

Suppose you face the same issue with your mortgage due to lack of income, increased expenses, or unforeseen challenges. In that case, you can look into lowering your monthly payments through a mortgage modification. To help you understand how mortgage modification works, here is a lowdown on the process and its associated factors. 

What is Mortgage Modification and What Does It Do?

Mortgage modification refers to the process of changing your mortgage’s terms to revise your monthly payment schedule. The process does not provide you with an additional loan. Instead, it amends your mortgage’s original conditions to bring your monthly payments close to your current level of affordability. 

A mortgage modification can occur when you fear that you will miss your next mortgage payment or experience a delay in your monthly payments. Since these situations could lead to foreclosure, you can reach out to your lender and explore your options for changing the term of your home loan. 

How Does a Mortgage Modification Work?

A mortgage modification works by significantly changing the original terms of your loan. This could include a variety of approaches to make your monthly payments more affordable and help you avoid foreclosure. Typically, a mortgage modification may involve the following strategies. 

  • Extending the term of your loan: Your lender can bring down your monthly payments by stretching your loan beyond the original schedule. 
  • Reducing your interest rate: By offering a reduced interest rate, your lender can allow you to have more affordable loan payments. 
  • Modifying your interest structure: Your lender can reduce your monthly payments by changing your loan from a variable interest to a fixed interest rate.

In most cases where your lender entertains your mortgage modification request, they may use one or more of these strategies to achieve the goal of changing your home loan terms. 

With that being said, some measures such as changing your interest structure may not apply in your case. That is why each mortgage modification is handled according to your current loan terms and the possibilities that it offers for change.

How Much Does a Mortgage Modification Cost?

Typically, a mortgage modification does not cost you anything. It’s because a mortgage modification does not provide you with a new loan. Instead, it only changes the home loan terms that you already have. 

As a result, you do not have to pay closing costs or other usual costs associated with new mortgages. Since the approach is meant to help you through hardships, almost all lenders make it a point not to charge you any additional fees for entertaining your request. 

But it is still important that you reach out to your lender and inquire about any involved costs before going through with the process. This allows you to steer clear of any hidden charges. 

Do Banks Do Mortgage Modifications?

Most banks that offer mortgages also allow you to do mortgage modifications. However, you need to use the same bank as your current mortgage for a loan modification. If you reach out to another bank or lender to modify the terms of your existing loan, you will need to take the mortgage refinance route that will involve a whole new mortgage. 

To see if your bank can help you with mortgage modification, reach out to their customer service and make a quick inquiry about it. This allows you to determine if you can go through mortgage modification with your current home loan at all.

Is a Mortgage Modification Bad?

Mortgage modification is not bad. It is convenient to get out of financial difficulties due to various life events. With that being said, you need to remember that going through mortgage modification may require you to accept a few conditions.

In all cases, you may see a negative effect on your credit score, which usually drops soon after you take out a loan modification. If your home loan modification involves the extension of your loan duration, you may end up paying more in terms of interest payments than your original loan. 

In addition to these factors, you also have to be mindful that if your mortgage modification does not complete in time, you may continue to run behind on your payments in the process. If your lender eventually refuses your request, it might leave you with a more difficult situation than where you were at the time of starting your loan modification request.

How Long Does a Mortgage Modification Take?

A mortgage modification can take anywhere from 30-90 days. Depending upon your lender, this period may also extend more than that average timeframe. To understand the period involved with your mortgage lender, ask them about the general duration they handle such requests. 

A basic yet effective way to speed up the mortgage modification process is to have all your documentation ready as soon as possible. By making sure that you are entertaining the lender’s requirements without failure, you can avoid delays. 

Can You Reduce Your Principal Balance With a Mortgage Modification?

Mortgage modification does not reduce your principal balance or the total amount you owe to your lender without the interest. However, if your loan modification cannot be entertained through typical strategies, some lenders may arrange for some of your principal balance to be paid at a later date. 

This approach, called principal forbearance, can also help you reduce your monthly payments. With that being said, it is only entertained in special cases and also involves other processes and analyses by your lender. This sometimes includes the trial of a repayment plan, which tests your ability to afford your new monthly payments before permanently modifying the loan. 

How Do You Qualify for a Mortgage Modification?

A mortgage modification requires you to have a significant reason for changing the terms of your loan. This means that simply missing a single payment on your home loan does not qualify you for a modification request. You need to have a reasonable cause that renders you unable to meet your original monthly payments. These reasons may include but are not limited to:

  • Death of your spouse.
  • Divorce or separation from your spouse.
  • Loss of income or employment.
  • Long-term illness or disability. 
  • Significant increase in home maintenance costs.

There could be a variety of other causes that may qualify you to get a mortgage modification. Speaking to your lender is ideal for determining if your current situation makes you eligible to modify your home loan. 

Usually, you may need to present evidence or certain documents to support your claim of not affording your monthly payments. These requirements may include the submission of your tax return. But the exact requirements differ on a case-to-case basis. This is also where speaking to your lender helps you determine what type of information you may need for your request to go through. 

What is the Difference Between a Mortgage Modification and a Mortgage Refinance?

A mortgage modification changes the terms of your loan through your current lender, but without any additional financing. A mortgage refinances you pay off your existing loan through a different lender and transfer your loan and associated monthly payments to that new lender afterward.

By refinancing your mortgage, you can often benefit from all new loan conditions that may come at low-interest rates, longer payment terms, and reduced monthly payments. But due to being a new loan, refinancing is similar to getting your mortgage again. This also means that you will need to pay mortgage-related charges that may include but are not limited to the application fee and loan origination fee.

Unlike mortgage modification that is only available in certain instances, refinancing is open to almost everyone through different lenders. That said, mortgage refinancing is typically not possible if you are running behind on monthly payments or stepping closer to foreclosure. 

There are various stresses associated with financial challenges. The concept of a variable interest rate, regular mortgage payments, and the idea of facing foreclosure can certainly place you in a state of anxiety.

Your financial statements may not be up to par due to a personal injury or some other matter. It is best to fully know the various resources you can take full advantage of in Media, PA. The law offices at Siddons Law will offer free consultation in Media, PA, when it comes to your loan modification. Visit our office today to speak with an attorney and move forward with loan modification matters in the Delaware County area.

What to Know Before Getting a Mortgage Modification?

A loan modification is a great option if you can no longer afford your monthly payments and fear the risk of eventual foreclosure. But the process does have certain factors that you need to understand before going through it. 

These aspects include but are not limited to the following points.

  • Extending your loan term may add up interest over the additional months. 
  • Getting a mortgage modification will affect your credit score.
  • Completing the mortgage modification may take some time. 
  • Modifying your mortgage still makes you eligible for a refinance later. 

Keeping these points in mind lets you modify your mortgage with ease. But if you need assistance or think that a refinance is a better option, you can count on Siddons Law to help you through the process. You can lower your financial burden through our affordable rates and quality service without stretching yourself thin. 

To see how our solutions can help, don’t hesitate to contact us at 610-255-7500 for a free quote today. We will be here to answer your questions and guide you through the process.