The mystique of Mortgage modifications
It may appear that a new “super hero” has appeared on the scene, ready to rescue anyone being defeated by a crippling mortgage, but is this a real “hero” or just some guy dressed in a cape? Can mortgage modifications rescue you, or is it all just hype?
What is a mortgage modification and can it really rescue you from the threat of foreclosure?
A mortgage modification is an adjustment to your current loan perimeters. It has the potential to lower your current loan payments, or interest percentage, although in some cases it may just be temporary. In most cases a mortgage modification will affect the interest on a loan, not the principal. Interest is typically what is crippling you, in the first place. A lot of times what has happened is that you acquired a mortgage with a low variable rate and as the economy changed so did the rate, possibly as much as 100%.
The mortgage modification re-adjusts this interest rate, reducing it back to an amount you can deal with. By reducing the interest rate you can reduce the amount of the monthly payment and overall interest paid drastically. Sometimes this is only for a limited period of time, such as 5 years. This may be just long enough to allow you to survive in the short term and provide you with time to gain strength for the future. A mortgage adjustment can occur in another way. Rather than reducing the interest rate it may extend the life of the loan.
While mortgage modifications may not be the only thing dressing up as a “hero”, the other options may not be actual “Hero’s” out to rescue you but rather simply stalling tactics. One example of these stalling tactics is”forbearance”. This is a temporary discontinuation of payments to allow you a chance to catch your breath. Kind of like the time between rounds in a boxing match. Just like in a boxing match, you will eventually have to get back in the ring.
Another stall tactic is a “repayment plan”. This may be bundled with forbearance. This is the practice of allowing you to catch back up on missed payments, by allowing you to pay an additional amount on your monthly payment till you are caught up.
Will this so-called “super hero” rescue anybody?
Mortgage modifications are usually for those that have the ability to get back on their feet. If you are in such disarray that the lending institution cannot realistically picture you recovering, then you most likely will not be granted a modification.
Unfortunately, if there is no visible evidence of you being able to get back on track, then chances are you will be “out of luck”. For example, if your expenses exceed your income with no visible evidence of this changing then in most cases foreclosure will be inevitable.
While mortgage refinancing can offer a chance for you to survive, it is ultimately up to the lending institution as to whether you will qualify. So while mortgage modifications may seem to be the “hero” you will need to help you survive, a typical mortgage modification will not help everyone.
However you should never allow the situation make you loose hope. If you think your financial situation can be saved then by all means, pursue a mortgage modification, and if at first you get turned down then you may want to find a source that may be willing to help you succeed.