Are Loan Modifications Worth the Hassle

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Are Loan Modifications Worth the Hassle

Your loan modification could be the best financial move you made since you worked out how your piggy bank worked, could be a financial disaster that immerses you deeper into debt with little to show for it, or could make no difference to your economy and just generate fees for Banks. Most of us don’t enjoy losing money and don’t particularly enjoy generating fees for corporate banks either so the question of if modifying a loan is worth the effort is a good one.

However it is also one of those questions that are impossible to answer in a straightforward way. This is rather frustrating, I know this from experience, when what you want is a direct reply. The truth is that loan modifications are one of many tools in finding a good deal on your mortgage. If used wisely at the right moment you could save yourself a lot of money. In short, the answer to if loan modifications are worth the hassle, is maybe, it depends.

An even more useful question would be: What makes a loan modification worth the hassle?

That we can answer more directly. The steps you must follow to work out for yourself if refinancing your mortgage or modifying your existing mortgage or loan is worth it are simple and mostly common sense (once you learn about them).

1) View the loan modification as what it is, a business transaction, don’t allow emotions or “feelings” to determine what you do. You maybe have heard your friends have modified their loan and ended up with a load of extra cash you would like to have to spend also. Think about the implications of your loan modification. Most loan modifications either increase the principal amount you borrow, lengthen the loan period (tenure), vary rarely simply reduces the interest rate of the loan, and in most cases includes a combination of all three options. What will it cost? Do you need the extra cash, or the extra cost that lengthening your mortgage would imply? Getting straight answers from your lender on this topics is not always easy, a little like getting straight answers from your mortgage blogger, but they have a duty to provide them, especially if they want your business.

2) What are the savings? This is such an important question it is worth asking again. To answer it you need to know the “real” cost of your loan modification. Ask your bank or lender for a complete breakdown of the costs included in modifying your loan. Then find out the extra interest you will be charged if you increase your principal (amount you borrow), put this on a piece of paper and ask yourself if the figures make sense to you.

3) Why do you want the loan mod? If you are struggling to meet your monthly mortgage payments it is pretty vital that you find a loan or mortgage modification that alleviates the pressure of your payments or you risk losing your house. If you are not struggling to make the payments but simply want to save money on your mortgage by taking advantage of a drop in interest rates, like that which we are currently experiencing, then you are in a rather strong position to get a good deal.

Whatever your situation you must be clear on your goal and not allow yourself to be sucked in by the mortgage salesperson pitch when trying to increase your mortgage principal unless you really need it and want it.