Loan Modification – Why should you apply for one?

When you obtain a loan, an agreement between you and the lender would have been signed by you both. Subsequently when some changes are made in the said agreement, it is called ‘loan modification.’ Such a loan modification helps you to make changes in monthly payments so that they are affordable. It will, in turn, save you the embarrassment of default on payments. Lenders will also be willing to consider such a loan modification  because it enables them to cut the costs by working along with you rather than chasing after you for repayment.

Why the banks offer loan modification?

In case you default on payments, the lender banks will have to opt for one of the following courses. 1) They can repossess the asset you have offered as collateral; 2) They can attach your salary; 3) They can appoint collection agents to recover the dues from you; 4) They may wait for your filing bankruptcy; and 5) They may just sit in silence regretting the loss. None of these options is welcome, either from your angle or from the bank’s angle. It will impair your credit, whereas it will mean loss to the bank. In the circumstances, loan modification is the best thing.

You have to ask for a loan modification; there is no other way out. If you have got the loan from a private lender, you can feel free to call on him and have a frank and honest discussion, explain your none-too-happy financial position at the moment, and request him to offer the best advice in the matter. The lender may agree to consider your case, provided you were honest and presented your case well, and may offer loan modification. If your lender is a bank, nothing could be known in advance. Even the question of youreligibility for loan modification, you will get to know only after you contact them.

As far as the banks are concerned, they can use the discretion to effect changes in respect of the terms of payment, to make them affordable.  They could make the changes either for a temporary period or make them permanent. Whichever way it goes, it will certainly give you much respite in regard to payments. Lower monthly payments may seem beneficial in the early stages, but you will end paying more in the form of interest over a long period. It will help you to know, in advance, about the cost and make sure it is the best for you, not only for now but also in the long run.

Does a Loan Modification mean increased payment?

Yes, but only at times. Normally, banks are averse to offer loan modification because it results in reduced monthly payments towards the loan sanctioned. In fact, a few banks choose to offer loan modification, which will have an opposite effect as far as the borrowers are concerned. This happens because the banks adopt a particular ratio for taking a decision on monthly payments in respect of a new mortgage. If the banks feel it necessary, they may even demand higher payments.

November 21, 2015 | Category: Business | Tag: