As the saying goes "there is no free lunch" and apparently this holds true in regard to Home Loan Modifications too. I just found this out, so if everybody else already knows this, then this may not be earth shattering.
During the Home Loan Modification period of seven years, (for the plan I saw) the lender lowers the interest rate on the mortgage to get the borrower to a range of 31% of their income for their mortgage payment.
What I did not know was that the lender adds the amount of savings the borrower receives to the end of the loan and that amount is basically a balloon owed upon sale of the home. So if a borrower was considering a Home Loan Mod, and they were not quite underwater on their home, perhaps in a equitable position at the time of the modification, they certainly would be up-side-down a few years later when they now would additionally owe the equivalent amount of whatever it was they saved in the modification process on top of their principle.
I must be missing something here. This has to be a certain recipe for long term disaster for the borrower. How could the borrower avoid being in a position where they were unable to sell their home at a later date due to the large balloon duefrom their earlier savings. Basically the homeowner is renting at that point and will certainly not have the ability to sell the home, having to walk away from the home at some point, unless they stay in the home for the now 40 year term of the loan.
How does this help the situation? I could use some feedback from AR, leave a response if you have some input.
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