A revised mortgage is like a new car. This year's model might essentially be the same as last year's. Or it might be completely redesigned to offer more value. Commonly known as a loan modification, a revised mortgage can differ slightly from your original loan or it can be like a new mortgage. Either way, it is meant to help you save money now, perhaps with greater benefits in the long-term.
When you applied for your first mortgage, your lender verified your income to ensure that your new loan payment (including fees for property insurance and taxes) would not exceed 31 percent, or perhaps no more than 40 percent, of your total monthly gross income. Your lender also verified that your total debt, including monthly payments for credit cards or student loans did not exceed 40 percent, or maybe slightly more than that, of your total income. If your income declines, or your debt increases, you might have trouble paying your mortgage. In this case, you might seek a modification to avoid foreclosure or bankruptcy.
Working It Out
Lenders don’t want to be landlords. They often prefer to keep people in homes and collect interest from them for years to come, rather than selling vacant houses at losses. Inhale deeply, then call your mortgage servicer, the company you pay each month. Tell them you might be paying late, or not all. They might revise your mortgage if you show that a lower payment would be warranted and affordable. You also can call 1-888-995-HOPE or go to MakingHomeAffordable.gov for help from nonprofit organizations or the federal government.
It's Shiny, But Is It New?
With a revised mortgage, you might get a brief reprieve in which your interest rate declines for a short time and then rises again after you regain your financial footing. Or you might get a lower monthly payment over a longer period if your lender extends the length of your mortgage. The best you could hope for would be that your lender reduces your principal so that you pay less altogether. This would be like getting the “completely redesigned” version of your car.
A revised mortgage can hurt your credit score if you pay less than the original balance, or intentionally stop making payments in hopes of forcing a modification. If you attain a loan modification through a government program, your lender will report your mortgage as current and paid in full as long as you are in compliance. Don’t let your credit score tank if you want to borrow again in the future, such as for your child’s education.
- University of North Carolina: Loan Modifications and Redefault Risk - An Examination of Short-term Impact
- U.S. News & World Report: Mortgage Settlement a Distraction, Not a Solution
- MSN Money: Underwater Homeowners to Get Principal Reduction
- Bankrate.com: 5 Steps to a Successful Loan Modification
- Experian: The Impact of Loan Modification on Credit Scores
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