Keep Your Finances Afloat With Suitable Loan Modifications

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Keep Your Finances Afloat With Suitable Loan Modifications

You don’t start worrying when you hit the iceberg; you make sure you are working hard to avoid foreclosure or financial duress as soon as you hear the radio signals warning you of danger. Just as Titanic was prey of bad planning, pride and reckless behavior many of us fall prey to foreclosure and financial difficulties when there is really no need for it.

This is not rocket science, we all start saving on non-vital aspects of our monthly spending when we our income is reduced or we fear we might lose our job. However we often think of our mortgage as a fixed expense that cannot be modified or fine-tuned. The reality is completely different. Mortgage providers like banks and other lending institutions know too well that many borrowers and their families are struggling and they appreciate responsible clients that are willing to make sensible modification or changes to their mortgage than simply foreclose or claim bankruptcy. Here are some basic steps to keeping your family finances afloat by fine-tuning your mortgage.

1) Be sensible in the percentage of your income that is used to pay your mortgage. A conservative rule of thumb is to not spend more than 30% of your total income on your mortgage. The origin of this guideline is quite interesting. Apparently it began when railway companies started to spread over the continent and supply housing for their workers, they would charge a week from every month of their wages for housing. Situations have changed completely and this rule is obviously not set in stone but if you are spending much more than 30% on your house you are probably spending too much and not leaving yourself with much room for maneuvering in case of financial difficulties.

2) Don’t remortgage to “invest” in your home. Too many have fallen in the trap to remortgage their home to invest in house improvements. If you need the house improvements and you can afford them I would recommend saving for them or if you really must borrowing for them , but don’t view them as an investment that elicits large lumps of cash. In the current market you are very unlikely to get your investment back and quite likely to pay dearly for the loan increase.

3) Talk to your bank as soon as possible if you see trouble. Banks appreciate customers who will be candid and realistic about their situation and are much more willing to renegotiate when you are not in the red yet. If you are expecting a large payment or your income is seasonal you might be able to renegotiate a payment holiday for a certain amount of time. Remember that banks are likely to make money or loan modifications like this instead of losing a lot of cash when a client forecloses their mortgage.

4) Don’t panic. Talk to an experienced financial advisor or to a trusted and knowledgeable friend. Bad situations can often be averted or fixed if caught in time.