The goal of every loan modification is to address the issue of affordability for the homeowner. Ideally, the lender or bank will turn an unaffordable mortgage back into an affordable loan for the borrower. Lenders achieve this using several methods that include: lowering the interest rate; extending the amortization schedule of your mortgage - e.g. extending your 30 year mortgage to a 40 year mortgage; reducing/forgiving the principal loan amount; and taking the past due amount of your mortgage and adding it to the principal loan amount, also known as capitalization.

Most loan modifications programs offered through your investor and those that are offered through the federal Making Homes Affordable program can lower your interest rate to 31% of your gross income with an interest rate as low as 2% per year. This can save the borrower quite a bit of money. For example, on a 30-year fixed loan of $100,000, a borrower can save over $220 per month when dropping from 6 percent interest down to 2 percent.

Below are two actual loan modification agreements. You can see exactly what a loan modification might accomplish for you.

The Proof is in the Payment

Example #1:

Current Principal Amount: $306,907.00

Current Mortgage Payment: $2,399.00

Modified Principal Balance: $245,526.00

Modified Interest Rate: 2.00%

Modified Mortgage Payment: $1,134.39

Total Monthly Savings: $1,264.61

Example #2:

Current Principal Amount: $580,000.00

Current Mortgage Payment: $4,055.44

Days Delinquent: 180

Current Interest Rate: 7.5%

Modified Principal Balance: $635,000.00

Modified Interest Rate: 2.00%

Modified Mortgage Payment: $2,347.08

Total Monthly Savings: $1,708.36

Loan Modification Advantages

Again, a loan modification could be the difference between you being a homeowner and you being homeless. Loan modifications are currently the only program that can permanently and effectively lower your monthly payment, reduce your interest rate, capitalize/forgive your missed payments and late fees, extend the terms of your loan, and possibly eliminate some or all of 2nd mortgages and home equity lines of credit to make your home affordable.

A bankruptcy does not accomplish this. If anything, you will be stuck paying the same current mortgage payment which you cannot afford in the first place. In addition, you will have to make an additional payment to the trustee of the bankruptcy every month for the next 3 to 5 years to repay the any past due payments or fees. This can easily add up to trustee payment of several hundred dollars a month on top of already paying your current monthly mortgage payment. To sum everything up, loan modifications gives homeowners that are in distress or soon to be in distress a 2nd chance. And at the Law Offices at Mack & Associates, we believe everyone deserves a second chance.

Do I Qualify for a Loan Modification?

Contrary to what some loan modification companies may claim in advertisements, not everyone can qualify for a loan modification. In order to qualify for a loan modification you must show proof that you are experiencing a hardship. You must also provide proof of income and be able to show that you can keep up with payments after the terms of your home loan have been modified.