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Mortgage Modification FAQ

Getting a mortgage to buy a home is a major commitment for the borrower, and also changes in rates of interest or the homeowner’s financial situation can make it difficult to repay a mortgage. Mortgage modification is one alternative for reducing monthly payments and preventing foreclosure without doing too much damage to the debtor’s credit history.

What’s Mortgage Modification?

Mortgage alteration is a process where a mortgage lender and borrower agree to change the original provisions of the mortgage loan as listed in the mortgage agreement. Any sort of change qualifies as mortgage modification, even though most frequently borrowers request modification to reduce the amount of monthly payments without defaulting, which occurs when a borrower misses a payment. Defaulting on a mortgage allows the lender to pursue foreclosure, which can lead to the borrower being made to leave the home so the lender can sell it .

Are Lenders Obligated to Give Modification?

Mortgage lenders are under no obligation to offer mortgage alteration, and each lender handles the process . Oftentimes it is in fact in the creditor’s best interest to consent to a kind of mortgage modification to get around the long, expensive process of managing a foreclosure and shedding the debtor’s monthly payments. Accepting premiums might be a business decision that is good. However, in cases where a borrower is unlikely to be able to meet even a reduced payment schedule, a lender may refuse modification and enable the homeowner to default.

Does the Government Modify Mortgages?

The federal government began a program called Making Home Affordable from 2009 to assist homeowners alter mortgages. Under the program, homeowners facing financial hardship qualify if they consented to a mortgage before the program’s deadline of January 1, 2009. Homeowners who qualify can receive a more positive alteration from their lender because the federal government backs the mortgage and makes the agreement less of a risk for the lender.

What Are the Alternatives to Mortgage Modification?

Mortgage alteration is not the only method to deal with financial hardship or reduce a mortgage’s monthly payments. Refinancing is one choice, which entails replacing an present mortgage with a new one that may have lower rates of interest or offer a longer quantity of time to cover it off. So-called strategic foreclosures occur when a homeowner stops making payments and allows a mortgage loan to default, then waits for the lender to foreclose. Finally, bankruptcy is a last resort that homeowners can use to find a court to ensure that the lender to offer a reduced payment schedule or forgive the debt Directly after liquidating the debtor’s assets.

Does Mortgage Modification Hurt My Credit Score?

Mortgage modification will not have a negative effect on the borrower’s credit score. But this effect is significantly less than the damage that bankruptcy or foreclosure can have. Getting a mortgage modification also allows the homeowner to keep on making cheap payments, which will enhance the credit rating for as long as the borrower continues to pay in full and on time. The net consequence of a mortgage modification is based upon the level of modification and the debtor’s credit history once the process begins.

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