There are several different types of loan modifications that you should be aware of when you are weighing your mortgage options. Not everyone seeks out a mortgage modification for the same reason, so you shouldn’t assume that this option isn’t for you until you take the time to educate yourself.  Of course it goes without saying that you should always consult an attorney before you make any final mortgage-related decisions, but this post will provide you with some basic info.

Loan Modification With Term Extension

With this type of loan modification, the term of the original loan can be extended up to, but not to exceed the terms of the loan at its initiation. Simply put, if your original mortgage term was 30 years, your term extension can be as much as 30 years, resulting in lower monthly payments.

Straight Capitalization Loan Modification

This type of loan modification is designed to help homeowners pay off delinquent interest. The amount of interest owed is combined with the monthly mortgage amount and amortized, resulting in a new monthly mortgage payment greater than the original payment.  In order to qualify, homeowners must demonstrate that they will be able to afford an increased monthly payment, based on their income.

Step Rate Loan Modification

With a step rate loan modification, the interest rate is adjusted, i.e. lowered over a specified period of time in order to allow homeowners temporary financial relief. Typically, the interest rate is lowered by up to 3% during the first year and then is gradually increased over the next two years.

Reduced Rate Loan Modification

A reduced rate loan modification is designed to lower the interest rate for the life of the loan, an option which may help some homeowners more able to afford their monthly mortgage payments and avoid foreclosure.  Rate reduction and rate extension are the most common ways that homeowners can renegotiate the terms of their existing home loans.

To learn more about loan modification options and to discover which one is the best for your financial situation, speak with your lender and/or your attorney.

This entry was posted on Wednesday, March 4th, 2009 at 12:15 pm and is filed under Loan Modification. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.