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Table of ContentsThere are a lot of different mortgage terms being thrown around
these days, with loan modification and refinancing becoming two of the
most popular. If you are looking for a way to slash your mortgage
payments, you may be considering one of these two options. But wait!
It’s important to know the differences between them to avoid getting
into another mortgage mess.
Loan Modification vs. Refinancing
It can be easy to confuse a loan modification and a refinance,
1. Refinancing a mortgage requires you to reapply for a new loan – a
2. Since you already hold a mortgage, loan modification rules are a
3. There is a lot less paperwork involved in a loan modification than
4. Refinancing a mortgage these days is tough! It may sound crazy to
How would you like to slash your mortgage payments by 10% …
gotten a lot of people into trouble in recent years. As interest rates
skyrocketed, so did their payments, leaving many unable to keep up.
More and more lenders are now realizing the benefit of offering these
homeowners a lower permanent rate in order to keep them in their
homes and up-to-date with their payments.
3. Forgiving late payments, penalties and interest. If you are one of
those homeowners who fell behind on your mortgage payments due to a
job loss, only to discover that the penalties, interest and late fees
were adding up faster than you could pay them once you got back on your financial feet, you may qualify for forgiveness of these add-on
fees through a loan modification.
4. A partial loan forgiveness. It’s not very common, but sometimes
lenders will forgive a portion of a borrower’s loan if they believe the
homeowner can keep their account current in order to avoid
foreclosure.
Of course, knowing the different types of loan modifications
available is only the first step in the process. Here are a few other
things you must consider when seeking this type of mortgage help:
• Whether or not your loan qualifies for modification. In the past
only loans held by the original mortgage lender qualified for
modification. That rule is slowly changing, however, making this
option available to more borrowers than ever before. Still, there
are strict qualifications for loan modification, so check with your
lender to see if you even qualify.
• There are no laws requiring a lender to offer modification
assistance, no matter what the circumstances. Approval is under
the sole discretion of the lender. No one can make them do it.
• Modifications are easier to get than refinancing or new loans.
Depending on the lender, the process can be much easier, involving
far less paperwork and financial information. Some don’t even
require that standard income/debt ratios be met as long as you can
prove that you can handle the new payment.
• Loan modifications are not new loans! They are a change to an
existing loan.
• Although there are some small fees required for a modification, no
standard closing costs associated with most mortgages apply.
Now that you better understand what loan modifications are all about, you will be better prepared to negotiate one for yourself.
Loan modification is a real buzzword these days, with millions of
homeowners looking into this viable option for slashing their current monthly house payments. But, not every mortgage is eligible for
modification, and some people may actually be hurt by it.
To figure out whether a mortgage modification is right for you, begin by
asking yourself these important questions:
Does my loan even qualify?
Unless your mortgage is still held by its original lender (and most
aren’t), the odds are you don’t even qualify for a traditional
modification. Until this year, any mortgage that had been sold to a new
loan provider couldn’t even request a modification of terms. Although
this rule has been eased up a bit due to the current financial crisis,
there is still no guarantee that you can even apply through a secondary
lender.
The best way to see if your loan qualifies for modification is to ask your
lender.
Am I behind in my mortgage payments?
Timing is crucial when negotiating a loan modification. Most
lenders require you to be behind on your payments to qualify – but not
too far behind. Your best strategy is to ask for help as soon as you
realize you can’t make your current payments, but before any type of
foreclosure proceedings begin.
What got me in this mess?
Your lender is going to want to know why you can’t make your
current mortgage payments and how you intend to make the new one.
They would rather negotiate new loan terms with someone who
unintentionally got into financial trouble due to an illness or lost job,
versus someone who overspent.
Do I really want to keep my home – and my mortgage?
It isn’t always easy to admit, but some people aren’t ready to make
the hard changes necessary in order to meet their mortgage obligations.
If you are one of those people, than you may want to consider other
options.
Am I sure I can make the new payments?
Mortgage lenders only give you one shot at loan modification, so
be sure you can handle whatever new payment you agree to. If you fall
behind again they’ll likely foreclose.
Can my lender even lower my interest rate?
The most common loan modification tactic involves lowering the
interest rate in order to lower the monthly payment. The problem is, if
you already have a low interest rate, your lender may not be able to
take it down any further.
Do I have any better options?
If you lender feels as if you have other options that are better
than a modification, they may require you to take one of those instead.
So, be sure that you understand your options clearly before asking for
a loan modification.
Once you have answered these simple questions (honestly now),
you will have a better idea of whether or not a loan modification is the answer to your mortgage woes.
Once you have taken a good hard look at your financial picture,
and have figured out that you need help with your mortgage, it’s time to
take some action!
Here are some basic steps to getting your lender to agree to a mortgage
modification:
Step # 1: Be Pro-active
The best time to approach your lender for help is before you have
become delinquent. Contact your mortgage lender as soon as you
realize that you are in trouble. Once your account falls into arrears;
it will be harder to convince the lender that you are trustworthy.
Step # 2: Check Your Lenders Website for Modification Procedures
Many lenders these days are offering a step by step guide to
mortgage modification on their websites; complete with the necessary
forms and contact names. Although modification isn’t something you can apply for online, using the information on the bank’s website is a
good guide for getting started.
Step # 3: Make a Call
Once you have downloaded the information and forms you need
from your lender’s website, you must call them and let them know you
are interested in a loan modification. Have all of your paperwork and
financial information ready when you call, and always ask to speak with
a loss mitigations representative – they are the only ones authorized to
modify any mortgage loan.
Step # 4: Keep Your Cool
No matter how the person on the other end treats you, it is
crucial that you remain calm and polite when speaking with your
lender’s representatives. The fact remains that they are under no
obligation to help you and if you allow your emotions to run wild, you
may find yourself without the modification help you need right now.
Step # 5: Get to the point
Once you get the right person on the phone you’ll want to make
your pitch for a modification quickly. Practice explaining your situation
clearly and briefly before making this important call. Give the information they need to begin the process without belaboring each
point and wasting the representative’s time. Remember, they must work
with hundreds of people just like you every week and the odds are
they’ve heard your story a thousand times since the mortgage crisis
began.
Step # 6: Don’t Be Afraid to Ask for Help
Be sure that you know exactly what type of mortgage modification
help you need and be sure to ask for it. You wouldn’t believe how many
people call their lender asking for help, without ever telling the
person on the other end of the phone what they really want. Then they
are angry when they can’t get their payment lowered to the amount they
need. Be clear with your requests.
Step # 7: Be Sure to Follow up
Every time you speak with someone on the phone, be sure to get all
of their contact information (name, title, department, phone number,
etc) and document what you talked about. That way, if questions or
disputes arise, you will have a clear record of what was said (and by
whom). Finally, always send a written thank you to everyone you speak
with as a polite follow-up to your conversation. It’s a great way to help people remember you and make them more willing to go that extra mile to help you out.
One of the biggest, mistakes you can make when hard times hit and
you know you can’t make your mortgage payment any longer is to avoid
asking for help. Asking your lender for help right away – before you get
yourself into even deeper financial trouble – is your best defense.
If you know that you’re going to be out of job in the next few
months, or your interest rate is getting ready to be reset, act now! It’s
always easier to negotiate with a lender while you remain in good
standing, rather than after you’ve missed multiple payments and they
have decided to foreclose on your property.
The first step to negotiating a loan modification is simple: pick up
the phone and let them know that you are in trouble. Call the 1-800
customer service number found on your payment coupon and ask for help. Keep in mind that these phone representatives can’t give you the
help you need, but it is a good place to begin. Calmly explain your
situation and ask to speak with someone in the company’s loss mitigation
department. You may be lucky and get right through, or you may enter
into an exhausting and frustrating game of phone tag as you are
transferred from one department to another.
Keep in mind though that it is the loss mitigation department that you
seek. They are the only ones authorized to negotiate a loan
modification
Once you finally make it through the maze of phone contacts to
the department you seek, be prepared to simply explain your situation
and what solutions you have come up with. Have solid budget numbers in
front of you so you can prove that you deserve a loan modification.
No matter how prepared you are for this phone call, the odds are
against them agreeing to a modification of your loan right away. Your
first contact is simply to get your foot in the door and get the ball rolling. It is the lender’s job to get all of their money, and your job to
negotiate a payment you can handle, so be willing to negotiate!
Here’s an important tip: document every conversation you have
with your lender including the day, time and name and job title of the
person you spoke with, as well as a detailed description of your
conversation. If you can get a direct phone line number, great! It’ll
make follow-up calls much easier. Always follow up with every
conversation with a letter that details your conversation.
Admitting that you need help isn’t going to be easy, but until you
take this initial step, you aren’t going to be able to get the help – and the loan modification – that you need.
It can be hard to face your mortgage company to ask for help. It
can even be harder to negotiate a loan modification you can both live
with. While it may seem at times as if your lender is playing hardball (and they probably are) remember, they are doing you a favor by even
considering changing the terms of your loan. No one (not even the
federal government) can make them modify your loan, so it is in your
best interest to negotiate nicely.
That doesn’t mean that you can’t negotiate a new payment you can
both live within the years to come. You just have to learn a few
negotiation tips.
Tip #1:
Lenders Aren’t As Opposed to Modifying Loan Terms As They Once Were
With foreclosure at an all-time high, lenders aren’t as resistant
to negotiating mortgage modifications like they once were. If you are
proactive, able to ask for a loan modification before your home enters
the foreclosure process,