Loan Modifications: What You Need to Know

Loan modifications come in a wide variety of permutations. In some situations, the bank may offer to stretch the length of the loan out by several years so that the monthly payment can be lowered. In others, the financial institution may forgive a portion of the loan and recalculate the monthly payment. Conversely, some loan modifications can help a consumer save on interest by accelerating the repayment period. No matter what kind of loan modification you are considering, here's what you need to know.

Know What You Can Afford

The new payment amount must be affordable. Draw up a budget and decide how much you can reasonably afford to pay. Once you have a range in mind, consider how long the loan's term would need to be to satisfy it at its current interest rate. Then consider if that range is reasonable. For example, if you discover that you would need to extend your mortgage from eleven years left to 24 years left to make the payment affordable, you may need to shave down your budget in other areas or consider selling the house.

Approach Your Financial Institution

Loan modifications are not usually handled by the customer service representatives you see at the branch or talk to on the phone. Often, all modifications are done by a special department located in the bank's headquarters. To best reach the correct person or department, call the normal customer service number and ask. Once you've been placed in contact with the correct personnel, collect a direct-dial phone number for future reference.

Communication is Key

The reason why this cliché is used to often is because it is true. If you are negotiating a loan modification, you will want to remain in contact with your financial institution. A loan modification offer is usually only good for 30 or 60 days, after which it expires. You need to keep on top of the dates and make sure that no correspondence was lost or mutilated in the mail. You can use registered mail to communicate, or simply call a week or so after you return the paperwork.

Understand the Terms

While having a modification summarized over the phone is great for helping you understand it, that conversation does not relieve you of your responsibility to read the document. Read through the entire modification so you will understand all of the stipulations. For example, you may be waiving your right to take any payment extensions or skip-a-payment offers.
Navigating a loan modification can be confusing. By following these tips, you can ensure that you get the right modification for your financial needs. Communication and comprehension are also essential to arriving at the perfect solution for your financial problem.

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