What are your long term goals and what are you trying to achieve through the mortgage loan mitigation process? Setting your goals is an important part of the loan mitigation process. If you know your options, you know when your bank is making a fair offer or just trying to manipulate your situation for their own profit. The terms you will get depend on what makes the most financial sense to your lender. Your loan mitigation attorney should talk to you about your options and help you set realistic goals.
Listed below are some of the elements that may be included in the mortgage loan mitigation process and a brief explanation of how each element can help you resolve a troubled mortgage. The ultimate goal with loan mitigation is to save your home by restructuring your mortgage to a payment that you can afford for the long term.
Waiving or reducing the delinquent balance:
If late fees and penalties make up a substantial potion of your outstanding debt, this can be a viable option. Your lender can reduce the amount you owe in fees and late charges or, if you’re lucky, even waive those fees entirely. They can also capitalize your arrears and add it to your principal balance, so you won’t have to pay it up front. This solution simply gives you a fresh start with a new payment.
Reducing the interest rate:
Sub-prime lenders, with their notoriously high interest rates, are a big reason why so many people are facing foreclosure today. This is why interest rate reduction is one of the most common forms of loan modification. When an interest rate is lowered, payments are accordingly reduced to a more affordable amount. Many modifications use a tiered interest rate which starts very low and ends up in a fixed rate loan which is competitive relative to today’s interest rates.
Extension of term:
Your lender can also add extend the term of your loan, allowing you to spread out the payments over a greater length of time. For example, re-amortizing your 30 year mortgage as a 40 year mortgage will result in a significantly reduced monthly mortgage payment. This may be the best solution if your income has changed and the payments have become unmanageable. Almost all lenders will agree to this change because they would technically make more money over the long run.
Change from an adjustable to a fixed rate:
Many people who fall behind are in adjustable rate mortgages or facing a “balloon” payment they cannot afford. With a fixed-rate mortgage, on the other hand, mortgage payments will remain unchanged for the entire term of the loan and is more secure for the long run. Most modifications include a rate fixing component for loans which currently have an adjustable rate.
Reduction of principal:
In some cases, it may make sense for your lender to simply reduce the amount you owe. Increasingly common, principal reductions are usually granted when the costs of foreclosure are greater than the amount that the lender is able to write off. With dramatic government incentive increases as of June 1, 2012, and the rise in strategic defaults by those with negative equity, principal reductions have increased in both frequency and size.