Is a Mortgage Modification Right for You?

These are unusual economic times to say the least. Are you behind in mortgage payments? Is your lender threatening foreclosure actions against you? Waiting on your lender to reach out to you with help is not going to improve your financial situation. Instead of facing a foreclosure, there may be other legal and financial options available, such as a mortgage modification.

So what is a mortgage modification?

A mortgage modification is a significant change your lender can make to your loan terms when you are about to miss a payment or after you’ve missed one or more. The main goal is to prevent foreclosure so you get to stay in your home and the lender avoids the expense of seizing and reselling the property. To qualify, you typically must demonstrate a significant hardship.

What is considered a hardship?

Typically an economic hardship — job loss, furlough, or other complications related to loss of income. During the COVID-19 pandemic, other circumstances may qualify as well.

How does a modification affect your credit?

A loan modification will likely have a negative effect on your credit, but less severe than a foreclosure. At Soble Law, we offer resources on how to rebuild a credit score after a negative impact.

How can a mortgage be modified?

• Reducing your interest rate — sometimes with periodic step-ups over the life of the loan.
• Extending your repayment period — lower payments, but potentially more total interest.
• Converting from an adjustable to a fixed interest rate.
• Principal reduction — rare; consult your tax advisor, as it may be taxable income.
• Refinancing — technically a new loan rather than a modification, and often hard to qualify for.