If you’re behind on your mortgage and looking to stop foreclosure, home loan modifications may be a route you can consider. Home loan modifications can help you catch up on back payments without losing your home. When you’re behind on your payments, you should talk to your lender right away about one of these options:
1. Straight capitalization. This option can stop foreclosure by adding the amount you owe to your loan principle. Straight capitalization is an option if you were behind, but can now afford your payments – with a slight increase. Because straight capitalization adds to your principle, you’ll have to pay a bit more each month for the rest of your loan.
2. Term extension. If you realize that you can’t afford the increase in payments from straight capitalization, term extension is another option for home loan modifications. With a term extension, the balance you owe will again be added to the principle, but you’ll have longer to pay it off, so your monthly payments won’t increase. However, you’ll be paying for your mortgage longer than your original term.
3. Step rate. A step rate can help you get back on track if you’re having trouble paying your mortgage now, but you expect to be making more in the future. A step rate reduces your interest rate for now, but increases it in the future when you’re more able to make payments.
4. Reduced rate. If you’ve gone through all your other options and they don’t work for you, your lender may consider permanently reducing the interest rate on your loan. However, many lenders will only consider this if a foreclosure would cost them more money than they’ll lose by reducing your rate.
When you’re falling behind on your mortgage payments, you’ll want to speak with your lender right away. Lenders will typically only work with you to perform home loan modifications if your family is facing a hardship, whether it’s unemployment or a long-term illness. You’ll also need to put time and effort into working with your lender, however, this time is worth it if it helps you stop foreclosure. Working with them from the start can help you stop foreclosure and save your home.
