Key Terms to Understand about Loan Modifications
Buying a house is an exciting event, but it may also be one of the most difficult if you don’t know anything about mortgages.
Buying a home can be a very complicated process. There is a lot of paperwork that needs to be completed.
It is important to know what to expect, especially if you are buying a home for the first time. This will help you make the best decisions for your family.
What is a mortgage loan modification?
Loan modifications are changes made to a borrower’s terms of an existing loan by a lender. The changes can be made to the interest rate, principal balance, or length of the loan.
What are the benefits of a loan modification?
Loan modifications can provide borrowers with much-needed relief from unaffordable mortgage payments. By reducing the monthly payment, borrowers may be able to avoid default and keep their homes.
What kind of modified loan can you acquire?
A loan modification might be thought of as:
- an extension of the length of time for repayment
- a reduction in interest rate
- a different type of loan
- any combination of the three above
Why would you do a mortgage modification?
Changes are made frequently because the borrower is unable to pay the original loan.
If you are struggling to make your mortgage payments each month, you may want to consider a loan modification. A loan modification can change the terms of your loan to make it more affordable for you.
Some common modifications include extending the length of the loan, reducing the interest rate, reducing the principal balance, or changing the type of loan.
How can you apply for a mortgage loan modification?
The most effective loan modification techniques are handled by an attorney or a settlement firm. Some people might qualify for government aid in loan restructuring.
The ultimate goal, in any case, is to save money the borrower owes. Sometimes you do it through a new loan or you might use a flex modification program.
It is important to understand how loan modification works, so contact your loan servicer today or call us for additional resources that might help you get a loan modification.
Do you understand how mortgage payments work?
Taking out a mortgage is usually the first step in purchasing a house for most people. It’s one of the biggest loans we’ll ever take out, so it’s critical to know how your payments work and what options are available to cut them down.
When you acquire a home, you must pay a deposit and a mortgage. The larger your deposit, the less of a mortgage you will require to borrow.
The term of the mortgage and the interest rate will determine how much it costs you to pay off your mortgage.
You’ll then make a monthly payment to the existing mortgage so that it is paid off when you finish repayment.
The importance of a loan estimate
Your loan officer must provide you with a loan estimate within three business days of applying.
The loan estimate is an overview of your mortgage loan terms and settlement fees, which are also referred to as closing costs or the cost of closing your mortgage transaction.
With this data, you may evaluate your mortgage loan offer and explore a few more options before accepting it. Call another real estate agent or visit other mortgage lenders that can reduce your monthly payment.
Loan modifications dictionary
Adjustable-rate mortgage
An adjustable-rate mortgage (ARM) is a home loan with a changing interest rate. For a length of time, the starting interest rate on an ARM is set.
After that, the outstanding balance is re-fixed at yearly or monthly intervals.
Bank statements
A bank statement is a document sent to the account holder every month that summarizes all transactions in an account over some time.
Closing costs
Closing costs are the fees you pay to your lender when you close on your loan. This includes processing fees as well as other costs associated with the loan.
Conventional loan
A conventional loan is a mortgage loan that isn’t guaranteed by a government agency.
There are two types of conventional loans: conforming and non-conforming.
- Conforming loans are those that meet the requirements set by Fannie Mae and Freddie Mac.
- Non-conforming loans don’t meet those requirements.
Credit reports
A credit report is a statement that shows your credit history, including how you have historically paid back loans and the status of your credit accounts.
The majority of people have 3 credit reports provided by Experian, Equifax and Transunion.
FHA loan
The Federal Housing Administration insures an FHA loan, which is a government-backed mortgage. Mortgage insurance protects consumers against mortgage default.
An FHA loan is more readily available to first-time buyers than conventional alternatives since it requires lower minimum credit scores and down payments.
This type of loan, however, carries with it an additional monthly premium amount to insure the loan.
Federal Housing Finance Agency (FHFA)
The Federal Housing Finance Agency was established by the Housing and Economic Recovery Act of 2008 (HERA).
The FHFA is in charge of ensuring that Fannie Mae and Freddie Mac (the Enterprises, as well as the Federal Home Loan Bank System) are operating by their charters.
The Federal National Mortgage Association is often referred to as Fannie Mae. It is a government-sponsored organization and a publicly-traded business based in the United States.
This association promotes the purchase, refinancing (or loan modification), and renting of homes for everyone.
The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, is a government-sponsored corporation that is publicly traded.
Financial hardship
Financial hardship is when someone is having a lot of trouble paying back their loan.
If you have a lot of trouble paying your bills, or if you can’t pay back your loans and debts on time, then you’re in financial hardship.
According to credit law, there are certain things you can do to protect yourself and get help.
Fixed-rate mortgage
A fixed-rate mortgage is a home loan where you agree to pay the same interest rate on the loan for the entire term. The interest rate on the loan will not vary during the term, and the borrower’s monthly interest and principal payments will stay constant.
Forbearance period
Forbearance is a lender’s concession to allow a borrower to avoid foreclosure or default through a temporary suspension of loan payments.
A forbearance period is established between the borrower and lender. The key factor in a forbearance period is that the borrower will be obligated to repay the number of suspended payments once the forbearance expires.
Hardship statement
A hardship letter is a document you send to a lender to explain why you have not been able to make your debt payments. This letter should include specific details such as when the hardship began, the cause, and how long you expect it to last.
Home equity
Equity is the difference between how much your mortgage is and how much your home is worth right now.
There are two ways that your equity can increase:
- As you pay down your mortgage, the amount of equity in your home will go up.
- Your equity will also increase if the value of your home goes up.
Your equity may decrease if the value of your house drops faster than you’re paying down the principal amount on your mortgage.
Interest rate
The interest rate indicates the amount that you’ll pay in interest on a loan. It also shows how good the benefits are of saving money. If you’re a borrower, the interest rate is the amount you pay for borrowing money as a percentage of the total loan sum.
Interest rate cap
The terms “interest rate cap” and “rate ceiling” are often used interchangeably.
An interest rate cap structure is a set of rules regulating how much an interest rate can rise on variable-rate loans.
Interest rate caps may be put in place on all sorts of variable-rate debt.
However, interest rate limits are often utilized in variable-rate loans and especially adjustable-rate mortgage (ARM) loans.
Life of the loan
The average life is the time it takes for a debt to be repaid through amortization or sinking fund payments. The average life calculation is used by investors and analysts to evaluate the risk involved in amortizing bonds, loans, and mortgage-backed securities.
Loan modification programs
A loan modification program helps to change the original terms of your mortgage loan.
A loan modification differs from a refinance in that it does not refund your outstanding mortgage and replace it with a new one. Instead, it adjusts the terms of your existing loan.
A loan modification is a change that can imply a new monthly payment. Your loan terms might change so much that your financial hardship is relieved.
Loan payment
The monthly payments are the amounts required to be paid back by the borrower following the terms of the loan agreement, note, and bond.
Loan term
A term loan is a loan that is repaid in installments over a set time, usually one to ten years.
Term loans generally offered by the mortgage company range from 15 years to 30 years. In some loan modifications, the lender can extend the loan to a period of 40 years to allow for a more affordable payment.
Missed payments
If you don’t make a payment on time, it’s called a missed payment. This happens when you send the money to the lender or service provider after the date that the monthly mortgage payment was due or after a grace period for the monthly mortgage payments has passed.
Missed payments can lead to other charges you agreed to pay in the mortgage and note signed at closing, such as late fees and penalties.
Monthly payments
The monthly payment is the amount paid each month to pay off the loan within the agreed deadline. When a loan is taken out, it isn’t simply the original sum borrowed that has to be repaid; rather, accrued interest must also be reimbursed.
Mortgage contract
The mortgage contract allows most consumers to buy real estate and protects the interests of lenders and borrowers.
Mortgage lender
Your mortgage lender is the company that loaned you the money to buy your house. Your mortgage servicer is the company that sends you your mortgage statements and who also handles any day-to-day activities with your loan.
Personal loans
A personal loan is a loan provided by a bank, credit union, or an online lender that you repay in monthly installments or tranches over two to seven years.
Personal loans can be a viable alternative for non-essential purposes, such as debt consolidation.
Personal loans can either be secured or unsecured loans.
A secured loan is a loan that has some type of collateral pledged to protect the lender in case of a default. A typical example is a home you purchased or a car loan.
An unsecured loan is a loan that only carries a guarantee to repay without any pledge of security.
Title/Settlement companies
A settlement firm is a business that manages the closing of real estate transactions, such as title insurance and escrow. It may also be known as a real estate closing company, a title agency, or an escrow company.
A settlement firm’s goal is to assist with the closing of a property that is being purchased. Not all firms handle every aspect of closing.
Private mortgage insurance
If you have a regular loan and take out private mortgage insurance, also known as PMI, you may be required to pay for it. If you stop making payments on your loan, like other forms of mortgage insurance, PMI protects the lender—not you—from defaulting.
Urban development
A city’s development is the growth of cities and their surrounding areas. This includes the social, cultural, economic, and physical aspects of city life.
VA loans
A VA loan allows active-duty military personnel, veterans, and their surviving spouses to borrow money to purchase a house with no down payment, no mortgage insurance, and light credit standards.
If you’re considering a VA loan, learning how they work will help you decide if it’s the right one for your purchase or refinancing plans.
You can reduce your monthly mortgage payment today!
Mortgage refinancing or having a loan modification is one way to do this.
When you refinance, you simply renegotiate your existing loan with a new one, typically with a lower interest rate. This can reduce your monthly mortgage payments and save you money over the life of the loan.
You can also choose to refinance your home loans for a shorter term, which will also lower your monthly payments.
Another option is to make a lump sum payment towards the principal of your loan.
This will reduce the amount of interest you pay over the life of the loan, and can also help you pay off your mortgage sooner.
Babi Legal Group can help you obtain a loan modification
If you’re struggling to make your mortgage payments, a loan modification may be an option for you. Your loan services must offer mortgage assistance according to your case and mortgage term.
Babi Legal Group has over 15 years of experience in helping its clients to avoid foreclosure and lower the principal balance of their existing mortgage.
No matter what your annual income is or who is your loan servicer, Babi Legal Group can help you refinance your mortgage term and mortgage payment so the terms of your loan are not laying heavy on you.
Avoid the foreclosure process if you cannot do any regular payments. We will help you look for real alternatives for an alternative healthy personal finance situation.
