How Does a Mortgage Extension Work?

A mortgage extension is a method used by homeowners who are struggling financially to keep their homes. The extension helps by reducing the monthly payment amount, providing immediate relief for those who are out of work or having other income struggles. The money that would have been due each month under the old terms is still due eventually, but the length of time given to the homeowner to pay it back is extended.

TL;DR (Too Long; Didn't Read)

Mortgage extensions extend the length of the loan and reduce the amount of the monthly payments.

Basics of Mortgage Extensions

When a homeowner can no longer afford the mortgage payments on her home and has fallen behind, a mortgage extension can help her keep her home. The extension is a way of reducing the payments by increasing the term of the loan. In the long run, it ends up costing the homeowner more, due to additional months or years of interest payments, but the immediate problem of high monthly payments is resolved. For many people, a mortgage extension is desirable because it may be the only way to get out from under late fees, bring the loan current, and keep their homes.

Qualifying for a Loan Modification

Qualifications vary among lenders but in general, you can expect certain criteria. You are eligible for a loan modification only if you are at least 90 days behind on your payments, and you must be able to demonstrate that you didn’t fall behind deliberately so that you could qualify for a modification. The property has to be your primary residence, and you must be able to prove some type of change in circumstances, such as losing your job or incurring significant medical bills. In most cases, you won't be considered for any loan modification if you have filed for bankruptcy, and lenders will generally only work with people who they feel are responsive to the lender.

Hardest Hit Fund

The Hardest Hit Fund (HHF) is an official program of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development. It will be accepting applications until December 31, 2020 from homeowners who are struggling to receive extensions or modifications to their mortgages. While the program varies from state to state, it generally offers mortgage payment assistance, a reduction in principal, funds to pay off second lien loans and help moving to housing that is more affordable.

Alternatives to Mortgage Extensions

For some homeowners, refinancing may be a realistic alternative to a mortgage extension as a way to reduce the monthly payment, but this works only if the home has not lost value. The main difference between refinancing and loan modification is that a homeowner who refinances typically is expected to be current on all bills, including the mortgage, and to have acceptable credit.

Refinancing is not necessarily a response to a hardship situation, whereas a mortgage extension is. If you refinance, it may or may not extend the length of your mortgage, depending on the terms of your new loan.

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