Sometimes, you the borrowers are not financially in a position to repay the loan that you have taken out. Keeping in mind the inability of the borrowers to repay the loans, lenders may find it judicious to go for loan modification. It involves lowering down the interest rate, extension of the loan term, reduction of the principal amount or any combination of the above three. The lenders find it a better option than you opting for foreclosure as the cost of you going for foreclosure is much more than you opting for loan modification program.
Whatsoever, various benefits are associated with loan modification program. The major benefits of this program are listed below.
Low rate of interest
One of the easy ways to modify a loan is to lower down the rate of interest associated with than loan in order to make to more affordable to the borrowers. However, the degree of reduction in the rate of interest deepens upon the judgment of the lenders. Generally, a reduction of 3% to 7% is offered by the lenders. With fall in the rate of interest, the monthly interest payment that you have to make is also reduced.
Helps retain homeownership
Inability of repay the mortgage loan implies losing ownership of the home. In this regard, loan modification program is very useful as its makes the terms and conditions of repaying the loan more borrower-friendly. In other words, this helps to retain the ownership in your home.
Increased loan term
Many lenders prefer to increase the term of the loan while keeping the monthly payment amount to a low level. This eases the pressure of making higher monthly payment. However, in this type of arrangement you have to bear the agony of making monthly mortgage payment for a longer time period.
Reduced principal amount
In some cases, the lenders reduce the principal loan amount so as to ease your loan burden. The reduction in the principal amount can be designed by tweaking the rate of interest and the loan term. Anyways, the loan is to make the loan affordable to you.
It is to be accepted that loan modification program has numerous benefits associated with it. The process involves some inherent processing and legal costs. The program has also some serious tax implications. It is shown in the credit report of the borrower that he/she has opted for loan modification program. The creditor reports it to the credit bureaus that the borrower has opted for loan modification program.