Loan Modifications: Change Yourself Not the Terms of Your Loan

I can’t afford my current mortgage payment and need a lower payment.

The lender won’t help or work with me.

Photo by RDNE Stock Project via Pexels

The closing is a special day for homebuyers.

They officially enter a transactional relationship with a lender for the next 30 years and sign legally binding documents.

In the beginning, new relationships seem promising….

The Promissory Note

Before they live with their financial decision, homebuyers make a big promise at the closing table. They promise to repay the lender an agreed-upon sum with interest every month, and in return, they get the capital to fund their dream home. Both parties agree to the mutually favorable deal and sign a Promissory Note, Mortgage and other documents.

It’s worth noting that lenders anticipate the possibility that borrowers may break their promises. Therefore, they protect themselves and disclose their rights to borrowers upfront.

The promise that most borrowers break is the failure to pay the agreed-upon mortgage payments.

The reality is that hardships happen throughout the borrower-lender relationship. Therefore, homebuyers must plan ahead for life events before they close on a home. Otherwise, they become reactive and desperate for help.

When borrowers fall behind on their mortgage payments, they turn to their lender or mortgage servicer for help. Despite the promises made, they expect the lender to do something for them. For example, borrowers may ask for a break from paying the mortgage payments or a more affordable payment.

The truth is that lenders owe borrowers nothing more than what the parties agreed to at closing. In fact, borrowers are the ones indebted to the lender. Furthermore, the lender never promised to work it out with them or offer assistance if they couldn’t keep their promises.

Be accountable for your broken promises

Accountability is the first step for borrowers to address their mortgage situation. They need to review their closing documents and understand the promises they made and agreed to. They also must understand the lender’s rights and the consequences that may result when promises are broken.

Once borrowers take accountability, they can explore ways to restore their loan account and relationship with the lender.

Explore Your Mortgage Assistance Options

Options for delinquent borrowers may include:

Keep the Home

• Reinstatement
• Refinance program for *distressed mortgages
• Forbearance plan
• Repayment plan
• Loan modification
• Reverse mortgage
• Bankruptcy

Transition from the Home

• Sale or short-sale
• Deed-in-lieu

*Self-modification is an alternative option that may result in keeping or transitioning from the home

Borrowers should consider all the options available to them and make an informed decision on the best option to pursue.

Modify Your Loan Terms

The most common option that borrowers pursue is a loan modification. The reason is that a modification of the loan may result in a lower or more affordable mortgage payment. On its face, modifications appear to be a good deal. However, a lower payment isn’t always the best solution.

Further, there’s no guarantee of a lower payment or that a borrower’s loan qualifies for a modification. In fact, borrowers may get denied or offered modifications that result in a higher mortgage payment, leaving them confused. Why would the lender increase the payments or deny the loan modification when they need help? Logically, it makes no sense but there’s an explanation.

Modification means a “change” to an existing thing. In the context of a mortgage loan, a modification is a change to one or more terms of the loan. Terms may include the principal balance, interest rate or maturity date. Therefore, it’s crucial for borrowers to understand that a loan modification is simply an option to change their current terms, not a guarantee of eligibility or an affordable payment. Further, if they do the math, modifications may cost them more money long-term. They reset the mortgage term clock and extend their relationship with the lender.

Therefore, borrowers should shift from thinking, “What can lenders do for me?” to a different mindset.

Other Option: Modify Yourself

Self-modification is the best option that’s always available. Yet, borrowers neglect to consider this option because it requires working on themselves. They fail to recognize that they’re a viable solution to their problems.

Instead of looking solely to the lender for help, they must help themselves first. When borrowers fail to look inward and understand the role they play in creating their situation, they’re bound to default again. They may develop a pattern and history of getting multiple loan modifications, which adds up to a permanent bad deal.

So, if you’re a borrower, change yourself in lieu of seeking external changes like a loan modification. Change your financial habits or limiting beliefs about money. Figure out how to change your financial situation.

You’re the best workout option.

If you like it, duly note it.

Elle