Loan Modifications

How Do Loan Modifications Work Loan modifications have been a part of a bank's repertoire since the introduction of mortgages. Historically, if interest rates dropped a borrower could contact their bank and ask for a modification of their loan instead of a refinance. A modification simply changes parts of the note, in this case the interest rate, and the lender keeps the mortgage. A refinance pays off the old mortgage completely, typically with a brand new lender.
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What Should You Expect with a Loan Modification Loan modifications can make a lot of sense if everything falls into place but there are some things you need to be aware of when considering a loan modification.

First, you need to determine that your financial situation will improve and at minimum stabilize in order to continue making timely payments. If you default on your loan modification, you won't get another chance with that lender and the foreclosure wave starts yet again.
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What Percentage of Loan Modifications Actually Go Through? Nearly half of such modifications fail to perform over the next 12 months and you'll be facing foreclosure yet again, losing still more money to the bank. A loan modification is successful if you can be assured that your current financial situation will improve over the next year by way of a new job, additional income or financial windfall.
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Do the Banks Profit From Doing My Loan Modification? Banks can appreciate the power of a loan modification as it can increase the possibility of increased interest earnings instead of losing that interest by way of a foreclosure. You get to keep the house and avoid foreclosure and the bank continues to receive payments from you in the form of additional interest they would not have otherwise received.
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