If you are having trouble paying off your mortgage or multiple mortgages, or if you are delinquent with your mortgage payments, you have a few different options to help save your home. Depending on your situation, you may want to consider filing a petition for bankruptcy. Here, you would use a Chapter 13 bankruptcy to save your home from being sold in a foreclosure. Alternatively, it may make sense for you to apply for a loan modification from your bank. A lender may modify your mortgage if you are able to demonstrate that you are unable to pay back the loan for a good reason, such as a dire medical emergency, shifting from a two income household to a single income household, or becoming disabled. An experienced Los Angeles loan modification lawyer can help you assess your options and develop a strategy for obtaining financial relief.

Loan Modification Basics

A loan modification occurs when a lender restructures the existing loan terms, usually in response to a borrower’s demonstration that he or she cannot repay the loan under the existing terms. Loan modifications typically involve a loan interest rate reduction, a loan term extension, a different type of loan, or a combination of these three changes.

Generally, you will have to take the type of modification the lender offers you. However, you can state your preference as to the type of loan modification and why. Why would a lender choose to help you out? Your lender might be open to modifying a loan because your default would be more expensive to them in the long run.

How Does Loan Term Extension Work?

If have a 25 year mortgage with 10 years remaining, you may be able to have the term of the mortgage extended to 35-50 years. It may be disappointing to have to extend the term for that many more years and to defer outright ownership of your house. However, it’s better than losing your house for failing to make full, timely payments. A loan term extension is often cheaper for the lender than an interest rate reduction, and therefore it may be a more desirable modification for the lender. An extension is only useful, however, if you’ve had the loan for more than a few years. If the loan is only a few years old, you may not be able to reduce the payment as much as you would like.

A loan interest rate reduction is more effective than a loan term extension for purposes of reducing your monthly payment. However, that option is more expensive for the lender and therefore may be more difficult to obtain.

While you may be reluctant to extend the period for which you are indebted to the lender, bear in mind that you can pay down what you owe whenever you have sufficient funds in order to reduce the term length. If the interest rate remains the same and there is no early payment penalty, you may be able to pay off the 40-year mortgage in 30 years and build equity in your home faster. But you still have the leeway to make a lower monthly payment if your finances don’t return to the condition you hope. If you elect to make bigger payments than required by the modification, be sure to let the lender know that the extra amounts should go towards your principal, not interest or escrow.

Certain loan modifications are part of the federal Home Affordable Modification Program (HAMP), which helps homeowners at imminent risk of default to keep their homes and avoid foreclosure. Not all lenders are part of this program, but a knowledgeable attorney can help you figure out whether you are eligible and what kind of loan modification is right for you.

You can negotiate a modification yourself, but before agreeing to a loan term length extension, ask an attorney to advise you on whether your modification will help you over the long term. Contact the trustworthy Los Angeles bankruptcy attorney Devin Sawdayi at 310-475-9399 or via our online form for help.