Home loan modifications are perhaps one of the most controversial topics of the last couple of years. It’s become more of a hot topic since the pandemic and, now, the economic downturn. Folks are having a hard time merely paying their bills and often, that money comes from their mortgage payments.
So, could a home loan modification be just what you need to save your home and help you to sleep at night – or is there any real upside at all?
Although they can be a boon to many homeowners, home loan modifications do have disadvantages, so let’s take a look at some of those.
Time is not on your side
One of the biggest frustrations borrowers have faced when it comes to home loan modifications is the endless delays and months that it can take to get any solid answers from their mortgage lenders and servicers.
Banks and lenders have often notoriously taken months on end to process loan modification applications, leaving homeowners in limbo, continuing to suffer sleepless nights.
As reported in the Palm Beach Post, laws were changed a few years back to force lenders to respond to homeowners within 10 days of a modification request and to deliver an answer within 30 days.
The loophole that remains, however, is that instead of approving or denying your request, they can rule your application incomplete, enabling them to stretch out the process just as long as before.
Will applying for a home loan modification stop foreclosure?
“Yes, but you must submit your application to the lender at least 45 days before the scheduled foreclosure sale of your home,” according to the attorneys with Amourgis & Associates.
Unfortunately, this time limit isn’t common knowledge among consumers, so many have found themselves being evicted while still waiting for their lenders to deliver a decision.
Note that for you to be able to explore your other options of filing for bankruptcy or selling as a short sale, you will still need to apply for a home loan modification, even if you don’t want one. Just don’t stop pursuing these other options in the hope of getting a modification before you get kicked out.
Loan modifications don’t always offer better terms
The government wants you to only deal directly with your lender or one of their preferred counselors for your home loan modification. However, loan modification companies will tell you that they are inundated with calls from borrowers who are being offered inferior modifications, which actually put them in a worse position.
While modifications are designed to lower a homeowner’s payments, what many don’t realize is that, depending on the type of loan product you chose, all of those months of back interest can be added back onto the loan.
Plus, those who have enjoyed lower monthly payments because they have been paying their taxes and insurance separately may end up with a higher payment than they expect when they are required to be paid monthly to their lenders.
These items may be balanced out by lenders extending loans for up to 40 years, which can feel great now but can mean paying thousands of dollars more over the life of the loan.
Mortgage loan modification is a one-shot deal
You only have one shot at applying for a home loan modification. Get it wrong and you may not like the choices left on the table. Get one approval that isn’t exactly what you hoped for, and you could be stuck with a worse deal in a home, still owing more on it than it is worth, for another five to 10 years.
This is why it is crucial to seek expert help and to educate yourself about the process as much as possible before applying.
The home loan modification process may not be all smooth sailing, but they are well worth pursuing. If you can dramatically lower your interest rate, stay in your dream home, and perhaps most importantly, continue to provide stability and peace of mind for your family, that is truly priceless.
For more information on mortgage loan modifications, visit the Consumer Financial Protection Bureau’s website.
We aren’t mortgage professionals and urge you to work with your accountant or other financial professional when considering modifying your mortgage.