Most lenders offer loan modification programs to borrowers who are having a difficult time making their monthly mortgage payments. Lenders have set up Loss Mitigation Departments to handle this aspect of their business and have trained staff to help troubled homeowners with loan modifications to avoid foreclosure. The foreclosure process is very costly for lenders as well as the homeowner.
Your lender may offer you several different loan modification program options. Keep in mind that your lender is going to work in their best interest and not necessarily yours, so it is important for you to understand the differences between the various loan modification programs and be clear on which option will work best for you. You need to be prepared and be willing to negotiate with your lender on a loan modification program that will work best for you and your situation.
One thing the Loss Mitigation department may offer you is a forbearance agreement. If you have a temporary hardship and just need some time to catch up, a forbearance agreement will allow you to either reduce or temporarily suspend your monthly payments for a specific time period. This is only a short-term solution and will only help borrowers who are facing temporary difficulties.
Another option is a repayment plan. This covers the past due amount on a loan. So when a borrower is behind on their payments a repayment plan will allow the past due amount to be repaid over a certain period of time. This will be added to the regular payment, so it will make the monthly payment larger. If a borrower is already have a difficult time making monthly payments, adding the past due amount to the regular payments may not help the struggling borrower at all. The repayment plan option will only be beneficial to a homeowner who had a temporary setback but now has the financial means to catch up and get current on their payments.
Finally there is the loan modification program. A loan modification will modify the terms of the current loan so that the monthly payments are lower. The interest rate may be lowered, the payment term extended, there may be some principal forgiveness, or the loan may be changed from an adjustable rate mortgage to a fixed rate mortgage. A loan modification program is a long-term solution, whereas the other options really address temporary or short term hardship situations.
It is important to be aware of all the loan modification program options that are available to you. If you are facing a temporary hardship a forbearance or repayment plan might work for you. However, if you need a long-term solution you should negotiate for a loan modification. This will permanently change the terms of your loan and make your monthly payments more affordable for you.