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Loan Modification

The basics of mortgage loan modification

It’s no secret that homeowners today are faced with some of the most daunting mortgage situations ever. If you were lucky (or savvy) enough to escape the housing market meltdown and hang onto your investment, now may very well be the perfect time to reap some of the benefits created by the demise of those less fortunate than yourself. By all means, be opportunistic, their loss needs to be your gain to level the field a bit.

What It Is and What It Is Not

By definition, a loan modification is a permanent change in the terms of your loan which allows it to be reinstated, and results in a payment that you can afford. A loan modification is designed to prevent you from going into default, and in some cases will only provide you with a lower interest rate for a specified amount of time.

Who is Eligible

Loan modifications were once only available to those who could show a definite need or financial hardship in the form of divorce, loss of a job, loss of a spouse, illness or other similar situations. While these are still viable reasons to apply, a new category has been added to include those people who are in adjustable rate mortgages and who will not be able to make their payments once the rate becomes variable, or who are not making their payments already for the same reason.

Advantages vs. Disadvantages

The biggest advantage, and the reason lenders are hesitant to offer mortgage loan modifications to begin with, is that they usually result in a substantial decrease in the amount of interest you can expect to pay over the life of the loan.

The only disadvantage, from a borrower’s perspective, is that a loan modification cannot be used to increase the amount of the loan; you can’t treat it like a refinance and take out equity.


Before embarking on your quest for the perfect payment plan, do a bit of research to make sure that you are  dealing with a reputable lender, that you are applying for the best possible advantages available to you, and that the terms will be manageable for you in the long-run.