Home Loan Modification Programs - Are They Right For You?


In this day and age of global financial crisis and depreciating real estate values, the word foreclosure seems to have ranked among the top five most dreaded words for homeowners today. For many, it seems an inevitable fate. However, the good news is that efforts are being exerted by financial institution, banks and lenders as well as the federal government in order to help save homes from foreclosure. Clearly, everything is being done to uplift the real estate market and bring it back to life, after real estate properties all over the United States plummeted to all time lows.

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Homeowners are encouraged to avail of these home loan modification programs and hold on to their homes instead of putting them up on short sale or losing them to foreclosure. Home loan modification programs work by helping homeowners work out a new loan structure with their banks and lenders that is more affordable.

Simply put, payment terms are adjusted in ways that the homeowner can afford. For example, if the homeowner has, all of a sudden found himself or herself among the ranks of the unemployed as a result of the economic downtrend, then, arrangements should be underway in order to make sure that payments, albeit less than the amount originally agreed upon in the mortgage, are continuously being made. This will give the homeowner a bit of a leeway in payments while allowing them to stay in their homes at the same time.

The federal government has, for example, in its initial efforts to encourage banks and financial institutions to restructure or modify loans, offered several incentives to banks as part and parcel of a comprehensive bail out package.

At the same time, several homeowners are being encouraged to avail of home loan adjustments and modifications with terms that allow them to make payments of no more than 38% of their actual income. This means that homeowners will no longer be forced to make payments that are virtually impossible for them to pay, simply because their payments are based, not on their mortgage balances or the value of their real estate property but on their capability to make payments at a certain period of time.

Home loan modification programs do sound sweet and really easy for several homeowners but availing of these loan modification or loan restructuring schemes should come with the realization that in a few years' time, depending on what loan terms you have agreed with your lender, the loan terms may revert back to what was originally arranged or worse, on terms with higher interest rates and steeper payment schedules.

In the end, it all boils down to careful financial planning. Consider carefully your options as you try to save your home. Know if and when you are expecting additional income and stability in the coming years before making loan modification arrangements, otherwise you may find yourself in a mortgage trap or a debt cycle more vicious than the one that you have tried to get out of.


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