by J Anthony Is
Question by MC: Can a home loan modification reduce the monthly payment dramatically?
has anyone had their mortgage loan modify? we pay 1000 a month for our house. is it possible to get it modify to pay 600 or 700 a month? I don’t know if I should keep my house? I think I am paying too much for an old house. when we first got the house we paid 600 a month and then like idiots (did not know any better) we refinance and now we paid 1000. my question is have anyone out there had their loan modify and is it possible to reduce the payments?
Answer by Paul in San Diego
One example of a loan modification I heard of is where the bank reduced the interest rate from 7+ percent to like 5+ percent, they changed the loan from 30 years to 40 years, and they let the owner skip a couple months’ payments. They could still make their money reducing the interest rate, because they stretched out the term to 40 years. This means the owners will pay less to principal each month and more money goes to the bank as interest. And, when they skipped the couple months’ payments, that was added to the principal. So, the bank gets that back when the people sell. They were also prohibited from selling the property for a few years, or else be subject to a significant pre-payment penalty.
How much that actually saved depends on what the original payments were. But, it would have probably been a 30% reduction per month. Not to mention skipping the payments for a couple months to get caught up on other bills.
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A loan modification can reduce your home loan payment but keep in mind that this is only a temporary fix. I was able to get a modification on my home through (then) ACORN. It took a few months but I was able to have a 1% interest rate for 12 months. This cut the minimum payment in half. That allowed me to not only make the minimum payment but also lower the principal because I paid an additional amount each month. My advice is to ask a counseling agency for help in writing a hardship letter. I didn’t have any problems with then ACORN-they did not charge me anything but like I said it took a few months. Many counseling agencies are offering help to homeowners so check your community listings-do NOT go with these no name companies who are promising you a miracle. Good luck!
The current modifications actually base the payment on your income. It’s 31% of your verifiable income. You can use some rental agreements if you have any renters staying with you to help with the income.
These guys will give you a more in depth consultation at no charge.