subject: Loan Modification for Pros and cons [print this page] Loan Modification for Pros and cons Loan Modification for Pros and cons
The financial crises have put us into a lot of trouble indeed. A good number of people have ended losing their jobs and landed in financial hardships. Those who could not continue with their schedule of payments had no other options than consulting the debt management services. Loan modification seems as a good idea to a lot of consumers who are behind their payments. Loan modification is much in use these days. With millions of consumers who are struggling to make their mortgage payments, there are three options which are available to them:
Put the home as a short sale.
Proceed towards foreclosure by not making the payments.
Ask the lender for a loan modification.
Basically, a loan modification refers to a program which amends the terms of the original mortgage in order to make the payments more convenient for the consumer. There are different loan modification programs. While some of these programs may reduce the rate of interest, others will simply increase the tenure of the loan. After reading about all these, a loan modification may sound like the exact thing that will end the crisis of mortgage defaults. Let us analyze the pros and cons of a loan modification program:
A loan modification will allow you to stop foreclosure and short sale.
The interest payments towards mortgage can be reduced to a large extent and the homeowners can switch to an affordable payment structure.
In case of a negative equity, the lender may even agree to compromise a percentage of the mortgage.
Typically, a loan modification program will increase the tenure of the loan, reduce the interest rates. In other words, it will reduce the total outstanding mortgage.
A loan modification will not make your failed mortgages public as it is an arrangement between the lender and the homeowner.
In spite of having these benefits, a loan modification may not be the right answer to resolve the mortgage crisis:
A loan modification system will never deal with the issue of a negative equity and although you are offered with the benefits of a reduced interest rate; it may not do you any good financially. Actually, negative equity occurs when the amount of loan is more than the value of the asset.
This program is not meant for all home owners and many of them are deliberately missing payments in order to get the claims of loan modification.
Along with reducing the mortgage payments, a loan modification will also reduce the FICO score.
There are a whole lot of companies which are offering mortgage modification programs. While some of them are legitimate, others are not free of scams.
Although a loan modification will offer the benefits of restructuring the mortgage, those with negative equity will hardly get the benefits and the numbers are on a rise.
