It may not be a good idea to accept the first loan modification that your bank offers. You will need to develop a strategy for a loan modification that will tie in with your long term objectives. Even though your mortgage payment may be reduced, it may not be enough to support your long range plans.
If some of your long term objectives are to
- stay in the house indefinitely
- pay off the house….and live mortgage debt free
- keep the house and get a reverse mortgage loan
- leave the house to your children or heirs
Whatever your reasons are, be sure that you have considered some of the following factors that may affect your long term objectives before accepting that loan modification offer.
- Will the terms of a 30 year fixed rate mortgage with a 5 or 10 year balloon significantly increase your monthly mortgage payment upon the balloon date?
- Will your delinquent payments increase your mortgage term?
- What impact will a 10 year interest only loan have on your loan balance and terms?
- Will a FHA-HAMP loan that has a loan modification combined with a partial claim help to reduce your mortgage payments and term?
- Can a principal reduction significantly reduce your monthly loan payments with a 40 year term?
These are just a few examples listed, there are many other factors to consider with regards to the payments, interest rate and terms of the loan. Consider very carefully the above factors because they just may not be a solution to your overall plan.
The bottom line is…. will you be able to pay off your house if some of the above factors are offered by your lender?
If your lender places you in a compromising position, then attempt to negotiate for terms that are more amenable to your objectives. Offer a strategy for a loan modification that will be a “win-win” for both of you. Ideally, when homeowners are making long range plans, they want 20-30 year fixed rate mortgage with a principal reduction.
Consider securing a loan program that is “simple” no adjustable rate mortgages with complicated indexes, terms, and payments.
Ultimately, if your best strategy does not meet with your lender’s approval, then you may need to consider a short sale or a deed-in-lieu of foreclosure.
In conclusion, always consult with a licensed mortgage and/or tax professional prior to making any major financial decisions.