Why loan modifications don work

You need to file a Chapter 13 where the attorney can set up a payment plan to catch you up on the back payments on the mortgage or you can file a Chapter 7 and just basically buy yourself a few months in the house and wipe out all your liability on the house and walk away from it. Sometimes, people just realize that they are never going to be able to hold on to the house and they start to buy time and walk away.

So, those are probably the two situations where it makes more sense to file a bankruptcy. Those kinds of situations make sense. In another case, if you have a lot of debts, a lot of times, we can file a Chapter 7 and get rid of all your credit card debt and other debts that are weighing you down and you can focus on getting a loan modification to save your home. If a person tells you they got a principal reduction, it usually means that a portion of the loan balance is now a silent second which will need to be paid at the time of sale of the property or as a balloon payment later.

Second, a loan modification will require payment of principal. Therefore, if you have an option arm loan also known as a pick-a-payment or an interest only loan, the loan modification payment in all likelihood will be higher than your prior payment amount. Also, loan modification payments will include an impound for taxes and insurance which will further increase the monthly payment.

Furthermore, if you miss any payments on the loan modification, the lender in many cases has the right to go back to the original payment terms and resume the foreclosure from the prior point without starting over.

Fourth, a loan modification requires documented income sufficient to qualify for a real loan i. If a borrower did not qualify for a 30 year fixed 5 years ago, how are they going to qualify now?

If a person does not receive a regular paycheck, monies need to be going through a bank account to show income. A modified loan may have a lower interest rate. You could even have a variable interest rate converted to a fixed-rate. The length of your term may be extended as well. A lender will often consider your circumstances to find a solution that helps you pay back the principle. The alternatives, including foreclosure , can be extremely costly not just for you, but your lender or financial institution.

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The information on this site does not modify any insurance policy terms in any way. If approved by your lender, this option can help you avoid foreclosure by lowering your interest rate or changing the structure of your overall loan. These changes can include a new interest rate or a different repayment schedule. Lenders allow borrowers to modify loans because default and foreclosure is more costly to their business. There are two kinds of loan modifications typically offered, according to Charles Gallagher, an attorney and partner at St.