The Truth About Loan Modifications

The best way to stay in a home that you want to keep long-term may be a loan modification. This involves a lender modifying your payments so that you can afford to keep making them. 

The modification could include lowering the interest rate so that the payment is lower or even adjusting the principle balance on the loan. In a typical scenario, a homeowner will hire an expert to negotiate the modification. Usually, the homeowner will be told to stop making payments during the negotiation, and the lender will tell the homeowner that a modification is being considered.


The advantage of a loan modification is that it can make an unaffordable loan affordable. The types of modifications that have a higher success rate involve converting an adjustable rate loan to a fixed rate loan or pushing out the interest rate adjustment for a couple of years.


The disadvantage of a loan modification is that, based on our observations, most of the time when the homeowner pursues these, they are ultimately not approved or almost certainly not approved in a way in which it is helpful enough for the homeowner to stay in the home. In other words, most of the time it does not work, and and the homeowner is not able to make up all of the late payments, interest, penalties, and legal fees, and thus the result is a foreclosure. We call this the "loan modification merry-go round." The types of modifications that have a lower success rate involve reducing the principal balance on the loan.

Loan modifications rarely work. Before exploring this option, make sure you talk to us. Regardless of your situation, income, or equity, we would like to help you!

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