There are many reasons that homeowners may find themselves struggling to manage their mortgage payments. The payment can amount to up to a third of the household’s monthly income, and any major financial changes could alter the homeowner’s ability to pay.
Job loss can create extreme but temporary financial pressure. A mortgage with a variable rate could be a source of unanticipated financial strain as payments suddenly fluctuate. Medical emergencies, divorce and a host of other challenges can impact people’s household budgets. Regardless of the underlying cause of the issue, struggling to pay a mortgage can have predictable, financially catastrophic consequences.
Missing just four mortgage payments could lead to foreclosure proceedings. Additionally, people usually have to cover all of the missed payments at once to eliminate the possibility of foreclosure. Individuals worried that their homes could be at risk may want to consider personal bankruptcy to delay foreclosure. Particularly when homeowners file Chapter 13 bankruptcy, they could also be in a position to negotiate a loan modification.
How do mortgage modifications help?
Mortgage modifications are official changes to the terms of a mortgage. Some people modify their mortgages by converting a variable-rate mortgage to a fixed-rate mortgage. Others might seek to adjust the interest rate. Interest rates fluctuate based on economic factors, and a modification that occurs while rates are lower could reduce monthly payment amounts significantly.
Modifications could also increase the repayment period, allowing people to reduce their monthly payments to a more manageable amount by making payments for longer. Lenders may even agree to move the missed payments to the end of the repayment schedule instead of demanding a large lump-sum payment all at once to bring the loan back into good standing.
Any of those changes could help those struggling financially protect their homes and the equity that they have already accrued. When combined with the discharge of other financial obligations, loan modifications can play a major role in relieving the financial pressure on homeowners.
Pursuing a Chapter 13 bankruptcy, in particular, can make it easier for property owners to negotiate loan modifications with their mortgage lenders. Homeowners contemplating bankruptcy may need help assessing their options and communicating with creditors, including mortgage lenders, and that’s okay.