How to Restructure a Home Loan

You've had your home loan for a while and now you'd like to change some things. Maybe your income has gone up and you'd like to pay off the mortgage earlier. Or you've gotten married and want to add your wife's name to the loan. Or worse, you've been laid off or had some major expenses and need to change your payments so you can keep the house. Those require restructuring or modifying your loan to reflect the new situation. You can do that in most cases.

Talk to Your Loan Officer

Talk to your current lender. Call your loan officer and ask how you can restructure your loan. Most lenders will work with you on modifying the terms and conditions of a loan if you've got good reasons. Make sure you're current on all payments if you're looking to cut the length or ask for a better interest rate. Explain your income situation if you're afraid you can't keep up the current payments.

Look for Help

Check out your assistance options. The federal government has programs designed to help homeowners in financial difficulty. The Home Affordable Modification Program was created in 2009 to help homeowners unable to meet loan obligations because of job changes, medical expenses or other legitimate reasons. You may still be able for aid in some cases.

Extend the Term

Ask if you can cut payments by extending the length of the mortgage or reducing charges for such things as mortgage insurance. Sometimes you can save by changing homeowner's insurance; your monthly payment typically adds an escrow charge to pay annual insurance charges. You'll need your lender's approval to change insurers or the amount of insurance.

Switch Loan Types

Switch to an interest-only loan, which reduces your payment because you only pay the interest monthly and don't reduce the balance owed. If you do this, make sure you have the option to add a principal payment at any time, either on a regular basis or just when you have extra money available. You may have to sign some new agreements for this restructuring.

Check Out Grace Periods

Seek forbearance if you're having temporary financial problems. Sometimes lenders will agree to a temporary restructuring to let you make lower payments for a limited time, like three or six months. You also may be able to get an agreement to block any foreclosure on the loan for some specified period to give you time to work out finances.

Look for Options

Shop around. You may be able to find better interest rates or other terms at another lender. If you do, approach your current lender about restructuring your loan to meet those rates or conditions. Lenders compete and the risk of losing mortgage business may get your current lender to restructure your loan on better terms.

the nest