Those people who are unable to pay back their debts and want to stay in their home they should go for loan modification. Loan modification is a simple way that gives you a chance for the debtors to pay back their debt. Actually loan modification can be very useful for debtors if the borrower is truly having a short-term hardship. In the loan modification your debt can be changed to a more affordable and reduce your monthly payment and interest rate. In simple words, the purpose for loan modification is to reduce debtor mortgage payments and make the payments affordable. Here Brian Linnekens a bankruptcy lawyer shares five reasons why you need to go for loan modification instead of filing for bankruptcy.
Reduces interest rate
One of the biggest benefits for loan modification is – a creditor will agree to reduce the interest rate for debtor mortgage but if you have a modification with a step rate feature, the initial modified interest rate is temporary it means it is usually fixed for 5 years after completing 5 years your interest rate begins to adjust automatically. This process is called rate cap. One important thing to remember is if your loan modification is about five years then your monthly payment and interest may be changing soon. If you still have a concern about anything then you need to call your mortgage company.
Protect your home
Loan modification is the best way for people to use who are not able to pay back their debt and want to keep their homes. Actually, those people may be thinking of filing a bankruptcy they believe that they might not get to keep their homes, and the unfortunate truth is that the entire process will only allow them to stay a little bit longer. However loan modification is a permanent solution for this problem. It will make your current financial situation easier because with the loan modification you can keep your residence by designing a lower monthly payment.
Principle reduction is a big benefit of loan modification. According to this the creditor will reduce the amount of principal that the borrower owes, with no expectation of a repayment. It is a very effective way to reduce payments than lowering the interest rate on the mortgage, or extending the term.
Impact for the credit report and financial history
If you file bankruptcy you can get relief from all outstanding obligations but the mark of bankruptcy is going to exist for seven to ten years. It is very difficult to get new loans and apply for credit in future with a bankruptcy mark on your credit report. However, loan modification builds a foundation for the consumer to rebuild their financial picture once again.
Makes you Debt Free
Loan modification will help you become debt free from the mortgage or other loans you owe. And the best thing is that this process is not recorded as a foreclosure or bankruptcy and banks will not harass you for the difference between the selling price of your home to pay off the mortgage in part and the total amount of the debt in exchange of a clean slate.