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Discussions different Types of Loan Modification Programs


Loan modification is the process of modifying the terms of your mortgage loan when you are having difficulty in making the monthly mortgage payments. Under this process the terms of the loan are modified to suit your present financial condition. You can either get the interest rates reduced or get the term of the loan extended or both. Both parties involved, that is the lender and you/the borrower are to agree on the terms and conditions of the loan modification.


Various types of loan modifications are available and there choice is dependent on the degree of difficulty that you are facing and your situation. A modification can only be imposed when you /the borrower and the lender agree to the terms. You may have calculated “how much home I can afford” before you took the mortgage, but due to some difficulty are not being able to make the monthly payments. In such a situation loan modification comes to your rescue.


Some of the most common types of loan modifications are as follows.


1. Expansion of the loan term: In this form of loan modification the time period that is allocated to you for repaying your loan, is extended. As per the decision of both the parties involved a particular date is set that is different from the original date and buy that date you must pay off the loan. This extension allows you to pay lower amounts every month as the time period is extended, so you pay the same amount but stretched out at a longer span of time.


2. Reduction in the rate of interest: When your lender lends you money, then he or she wants the full amount that is lent back along with an extra payment that is called interest. This amount is to be paid to them as a charge for using their money that has been lent to you. The percentage of interest is decided at the time of the original deal. When you opt for loan modification your interest rates may be reduced. So you will not need to pay interest that you were originally supposed to pay. The amount that you pay now as interest is greatly reduced. Another advantage this has is that any amount that you pay towards the loan is diverted towards the principal amount of the loan. This helps in reducing the principal sooner and thus helps you in getting rid of your mortgage as soon as possible.


3. Lowering the principal: A reduction in the principal implies that the principal amount is lowered to match the current value of the loan. To get such a modification the lenders discretion is what is most required. In most cases this sort of modification is not considered in the early stages but in the later stages.


These are a few common types of loan mortgage types that you can consider. You must carefully choose and ask for what suits you best. 

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