For the most part, you have a couple options depending on your lender.
Almost every lender has an in-house loan modification program. This is simply your lenders own modification program that is approved under their own guidelines. Every lender is different, so every in-house program is a little different as well. They are often very similar to government programs described below. Most people apply for a government program with their lender and if that is rejected, apply for the in-house loan modification program.
There are also a government sponsored loan modification programs. These guidelines were set by government agencies and are used by many lenders, but not all participate.
With these loan modification programs, if you qualify your monthly payments are reduced to 31% of your monthly income. This is accomplished by reducing your interest rate as low as 2%, extending the length of your loan and reducing your principal balance.
More types of loan modification programs...
Term Extension Loan Modification Program
With this kind of loan modification, you are asking for "more time" to repay your loan. With a longer term to pay...you would also have a lower monthly payment. The length of the extension cannot be any longer than your current payment term. So if you had 15 years to pay off your mortgage..you would be allowed no more than an additional 15 years.
Reduced Interest Rate Modification
With this kind of loan modification program, the lender will reduce the interest rate for the remainder of your loan. This will automatically result in a lower monthly payment. Remember this will only reduce the interest not the principle on your loan.
Step Rate Loan Modification Programs
Unlike the reduced interest program which extends the life of your loan...the step rate loan begins with a reduced interest rate and gradually returns to your current rate over a short period of time. So if you are certain that you will be able to get back on your feet financially within a few years...this may be the right program for you. But it's important to really take a hard look at your finances before taking this route.
The rate reduction is only good for a few years. After that...you will be back to making the same monthly payments you had before the step rate loan modification.
Of course, your lender can also decide to use a combination of any of the above mentioned programs to help you.
Principal reductions are a pretty rare happening. The goal of a loan modification program is to help homeowners afford their payments and this can usually be accomplished with a interest rate reduction or an extension of your terms. For example, taking a 30 year mortgage and extending it to a 40 year mortgage.
The only negative aspect to all of this is that most lenders reject a large majority of loan modifications that are proposed to them by homeowners. To combat this, you may want to use a loan modification company to assist you in getting approved. Many companies will not charge you anything until your modification is approved.
For questions about your current options (there are many!) just call 888-766-3693 or visit Best Mortgage Loan Modification to see if you qualify for a loan modification.
