Mortgage loan modification is similar to a mortgage refinance wherein you change the features of your mortgage loan to suite your needs. A mortgage loan modification will also you to make changes to your loan characteristics, if, you can prove that you are going through a period of financial hardship.
What Is Mortgage Loan Modification?
Mortgage loan modification is a result of the government program “Home Affordable Modifications”. This program was launched in 2009 to lower the rising number of foreclosures. It does this by providing mortgage loan lenders with a financial incentive to change the mortgage loan characteristics for owners of homes who are struggling financially i.e. to make the monthly payments smaller and more easily payable, thereby allowing people to remain in their homes and preventing foreclosure.
Qualifying For Mortgage Loan Modification In the Greater Boston Area
Since mortgage loan modification is a government backed program you will need to meet certain requirements, namely:
- January 1, 2009: The first and most important requirement is that the mortgage loan you have taken should have been taken out before January 1st, 2009. If you have taken the loan after this date, then you are not eligible for this program.
- Amount Owed to Mortgage Lender: The second requirement is that the balance of the mortgage loan you have taken should not be greater than $729,750.
- Proof Of Financial Setback: If you meet the above two requirements then you will need valid proof to show your mortgage loan lender that you have actually undergone a financial setback (anything from loss of job to loss of secondary income to cut in the hours you are allowed to work in a day).
- Proof That Setback Makes Payments Impossible: You need to prove that your monthly mortgage payments are greater than 31% of your new monthly gross income i.e. that the setback has made it impossible for you to continue to make the mortgage loan payments.
- Proof That You Can Make Modified Payments: Lastly, you need to prove that your new current income after the setback will allow you to pay, for the modified mortgage loans, monthly payments.
How Do Mortgage Loan Lenders Modify Loans?
Lenders usually modify the loan similar to a mortgage refinance, so they have two methods at their disposal:
- Change Time Period of Loan: The first option available to lenders is to change the time period of the loan i.e. to increase the time period. So, if you previously had a 15-year loan, the time period might be increased to 30 years. This will effectively lower your monthly payments in half.
- Change Interest Rate of Loan: The second option available to the lender is to lower your monthly interest rate (sometimes to a small 2%).
- Forgiving Part of Balance: While this is not usually resorted to by lenders, at times, they do forgive a part of the mortgage loan balance. This will make your payments smaller since 6% interest on say $400,000 is smaller than a 6% interest on $450,000.
If you have undergone a major financial setback and are looking at foreclosure, consider mortgage loan modification in the Greater Boston Area. Not only could it lower your payments, it may also allow you to stay in your home.