Do I Have to Pay My Mortgage During a Modification?

Tough economic times have created a situation where many homeowners can no longer afford the home they are in but are unable to sell because of a slow real estate market. Many banks are offering loan modifications to homeowners who are not able to make their payments. These loan modifications can take months to process. What you do while you are waiting can make a difference in your loan modification approval.

Each bank has a different application system and requirements for loan modification. Go to your bank’s website and find the area that addresses financial assistance and loan modifications. Read the information carefully before contacting the bank. You will want to have all of your financial records handy, including all pay stubs, bank statements and monthly expenses for the past six months. Work with your bank to understand all of the steps required to get approved for loan modification. The process will require a lot of paperwork. Make sure that you fill it all out in a timely manner and keep records of all communications with the bank.

It may take months to get approved for loan modification. Because each bank structures their loan modification differently, make sure you ask plenty of questions to understand how your loan will be restructured. Some banks will reduce the principal amount owed, while other loan modification programs only reduce the interest rate on the loan.

While you are waiting for approval, make timely payments on your loan. The representative you are working with from the bank will let you know exactly how much to pay and on what date. Many banks will leave the payment’s due date the same but simply alter the amount owed. This may be a temporary payment amount or the full current payment. It may not reflect what your payment will be once the loan modification is approved. Be sure to pay all required payments in full and on time to avoid disrupting the loan modification process.

Your loan may be drastically altered by a loan modification. Some banks create a stepped mortgage that slowly increases the interest rate over time. Other banks will reduce your principal. Review all the paperwork carefully. The mortgage’s due date may also change. A 30-year fixed loan will be due 30 years from the time that the loan modification goes into effect, not 30 years from the approval of the original loan. Read the fine print to understand all of your financial obligations. This will help you avoid costly fees, hits to your credit score and possible default on the loan modification.