Many people who face bankruptcy also face mortgage foreclosures. Although some bankruptcy options allow you to save your home, you are still responsible for paying your mortgage every month.
However, if you still cannot pay your mortgage payment, you may have another option. These are some things you should know about mortgage loan modifications.
About loan modifications
The purpose of a loan modification is to reduce your monthly payment to one you can afford. Banks can modify your interest rate, increase your loan repayment period or reduce your loan balance to reduce your payment. You do not actually sign a new loan, but your existing loan terms change. However, the lender determines what loan terms change.
This option is typically only available if you cannot refinance your loan. For example, your loan may be higher than the current value of your home, or you may not have sufficient credit to qualify for a refinance loan. In addition, you need to experience long-term financial hardship. This typically requires months of financial lack, e.g., losing a job or unexpected ongoing medical expenses. Finally, you need to be months behind on your mortgage payments or face the likelihood that you fall far behind in the near future.
Affect on credit
Your bank may notify the credit agencies that you modified your loan. This can cause a dip in your credit score. However, it is much lower than the hit your score will take if your bank forecloses on your home.
Because the Home Affordable Modification Program and Home Affordable Refinance Programs have expired, your lender can modify your loan at their leisure, and this modification can be temporary or permanent. Therefore, find out the terms of your modification before you finalize your modification.