John's Sanibel Island Real Estate Blog

With everything that is happening in the real estate market over the past few years you may have heard the term loan modification? What exactly does that mean and can you put it to work for you?

A modification is simply an agreement between you and the lender, usually the bank, that will alter the terms of the original mortgage agreement. This can work to the advantage of both you and the lender. If market conditions have changed drastically since the time you originally took out your loan this may be viable alternative to avoid foreclosure or simply being stuck with the original terms of your loan.

You don’t have to be delinquent with your loan to suggest a loan modification. If interest rates have dropped significantly and you simply want to lower the rate to the current rates give your lender a call to see what their policy is regarding loan modifications. If you are not looking to take additional equity out of the property you should point out to the lender that they may lose a valuable customer to another, more cooperative lender if they will not modify the interest rate for you. This is really a very easy step for most lenders to do, they just push a few buttons and the computer will adjust your payment for the remainder of the loan term. Because you are not taking out additional equity the closing costs associated with a new loan can be drastically reduced. You will not have to pay for a new appraisal, survey, etc.

If you are delinquent with your loan, a loan modification may be able to save your home by lowering the payment. Remember, the last thing a lender wants to do is to foreclose on a property. They are not in the business of owning real estate. They just want to earn interest on loads secured by real estate. When a bank takes possession of a home they know they are faced with a multitude of problems. They have to secure the property, make arrangements for maintenance and lawn care, make necessary repairs to prepare for a sale, list the property and then most likely sell at a loss. If a loan modification will save them from this they are more likely to consider it as an option. It’s a win/win situation for all concerned.

So, whether you are current with mortgage or just looking to save money by lowering your payment and avoiding the expenses of a total refinance look into the option of a loan modification.