A loan modification may be right for you if you are experiencing a hardship or facing foreclosure. A foreclosure can be postponed while working with your lender to find a loan modification solution, once approved your loan is brought current and the foreclosure is halted. Something you should know is there are 4 main types of loan modifications, when discussing a loan modification with the lender it is important you understand the differences and which modification can give you the greatest benefit and how it will affect you in the short and long run. First you have what is called the Straight Capitalization Loan Modification; this modification is where delinquent interest is added to your principal balance and is amortized over the existing term and interest rate. This will cause an increase in the homeowner’s monthly mortgage payments. The straight Capitalization Loan Modification is not a good option for the homeowner that is facing a long term hardship and is struggling to make their monthly payments. In my opinion this is the worst modification available. The homeowner would have to qualify for this modification proving they would be able to afford the increase in payments. Second is the Loan Modification with Term Extension; this modification extends the loan terms (the length of the loan). In most cases the delinquent interest is added to your principal balance, the term of the loan is extended a certain amount of months or years thereby reducing your monthly payments and making them more affordable. For example, a homeowner that had a thirty year mortgage and 25 years remaining could extend the term to 40 or more years. There can be many benefits to this type of modification; it can help you achieve the lowest monthly payment, lower payments may protect you in the event of future financial crises. If you become stable and are in the position you can always pay extra towards the principle to lower the balance and providing there is no prepayment penalties shorten the term of the mortgage.
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