Understanding Loan Modification
Loan modification, as the name suggests, is a term that is used to define the process of change in loan terms and agreements. The term is generally used to define a condition when the original terms and conditions of the loan are longer viable and the new conditions need to be formulated. The modification is rarely regarding the complete set of conditions and applies on only a few. Though the entire loan can be modified, housing loans are generally modified by the people.
In loan modification, either the terms of repayment or the duration of the payment is changed. There can also be a reduction in the rate of interest of the rate or the change in the type of the loan interest. It can move to fixed to floating or vice versa. The principal amount can also be reduced by the lender. Monthly payments can either be capped or the lender may go for a change in the fees of late payment and the penalties arising thereof. In some of the cases, mortgage forbearance is also practiced. Overall, we can say that it is a great way for the borrowers to change the way they manage their credit.
Avoid Foreclosure & Bankruptcy
Though loan modification can be done by any lender, whether current, defaulter, bankrupt or in the process of foreclosure, it is usually taken by people who end up in a financial crisis due to any reason. We must not forget that these are testing times for our economy and many businesses are falling apart, creating more unemployment in the country. At this time, any person can come at the level of bankruptcy or foreclosure of their property. Therefore, loan modification works as a great tool in the hands of the homeowners who do not want to opt for dubious techniques or even foreclosure.
Simply talking to the lender and conducting a few small legal formalities will do the job for you. Your credit history is not affected by modifying your loans. Therefore, it is quite an easy and safe method. Additionally, the lenders are also not at loss in this situation. In short sales, they have to let go of some amount of money and foreclosure brings in a lot of legal formalities. However, with loan modification, everything can be sorted out with ease and one can easily pay the amount that he can comfortably handle. No doubt, loan modification is popular these days and more people are opting for this procedure so that none of the two parties face a loss.