The Best Options when Faced with a Serious Mortgage Repayment Problem - When you apply for mortgage loan advancement, you don't expect that a financial uncertainty will strike somewhere along the way as you continue to repay the loan. When such uncertainties strike, you need to take a bold step to approach the mortgage loan lender and seek solutions to the problems.
The Best Options when Faced with a Serious Mortgage Repayment Problem
By Chris Rod
Oct 3, 2011 - 8:43:49 AM
When you apply for mortgage loan advancement, you don’t expect
that a financial uncertainty will strike somewhere along the way as you continue
to repay the loan. When such uncertainties strike, you need to take a bold step
to approach the mortgage loan lender and seek solutions to the problems. There
are many ways you can handle this situation. For instance, you can negotiate for
a loan modification or a short sale. You can take another loan to repay the
existing mortgage but this is not a good option since multiple borrowing can be
risky.
You can also adopt foreclosures where the borrower stops making payments and
the lender takes possession of the house. However, a foreclosure has a lot of
implications on both the lender and the borrower for instance, tax implications
on the lender and credit worthiness problems to the borrower. Therefore, a loan
modification and a short sale may be the most viable options to adopt in case of
a mortgage repayment problem.
A loan modification is simply an alteration of the agreement to favor the
borrower to repay the loan without much financial constraints. The short sale on
the other hand is arrived at when the seller feels that the only option is to
let go of the house in order to repay the amount owed. The seller or seller’s
agent approaches and influences the mortgage lending institution to agree on
receiving some of the amount from a discounted sale of the house. In this case,
the lender agrees to forgive the remaining amount. In the short sale the lender
doesn’t want to receive the property since there are other complications when
the ownership is transferred to the lender.
With the loan modification, the lender agrees to alter the agreement so that
the borrower can be able to repay the loan with ease. This is however subject to
a lot of scrutiny since the lender has to ascertain that the borrower really
deserves such a loan agreement modification. For example, there are financial,
employment and hardship factors which are considered and the borrower should
meet such qualifications. The loan modification may entail one or a combination
of any of these factors; an extension of the loan term, a reduction on the
interest rates or a reduction on the monthly repayment installments.
When the interest rates are reduced for the loan advanced, this means that
the monthly installment amount payable is reduced or the period of payment is
reduced. In the same way, when the principal amount is reduced in the loan
modification, this means that the interest rates or the loan term (loan payment
period) is reduced. It must be said that the loan modification and the short
sale are arrived at after a lot of considerations and evaluations of both the
lender’s financial interests and the borrower’s ability to repay the loan. The
short sale can be arrived at when the lender foresees an inability of the
borrower to repay the loan in the near future.
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