Avoiding foreclosure with a mortgage loan modification

Buying a home is an important financial accomplishment. Unfortunately, financial circumstances often change throughout life, and homeowners in Maryland might find that it is difficult — or even impossible — to keep up with their mortgage payments. Some worry that they are destined to end up in foreclosure. A mortgage loan modification offers an alternative.

Mortgage loan modifications change the terms of a homeowner’s existing loan. These changes are generally intended to lower monthly payments to a more affordable amount. While a modification does allow homeowners to keep their property, the lender may label it as a debt settlement and report it to the credit bureaus. This will impact a homeowner’s credit score, but not as badly as foreclosure does.

There are different types of loan modifications, including extended loan terms. A lender might agree to extend how long a homeowner has to pay off his or her mortgage, such as stretching a 15-year loan to 20 years. This would possibly reduce a homeowner’s monthly payment by several hundred dollars and be an immediate help in the short term. But because of interest, he or she will ultimately pay more over time.

A homeowner who has otherwise been on time with monthly payments may be able to secure a deferment. A deferment is when a lender allows a borrower to skip payments for a specified period of time. These payments do not just disappear, though, and are generally added on to the end of one’s loan.

There are other options for securing a mortgage loan modification, including lower interest rates, loan conversion and principal reduction. Each option offers its own benefits and drawbacks. It is important that a Maryland homeowner understand which option is most appropriate for his or her situation when asking for a modification, so it may be helpful to seek guidance on this decision.