These days, banks are just as scared of foreclosure and repossession as struggling homeowners. If you are facing circumstantial changes to your current financial situation and are anxious of impending missed payments, the above could serve as your mantra. You’ve got an option other than foreclosure or bankruptcy: negotiate a change to the terms of your loan from your lender.
Banks and lenders realize that house prices are plummeting and at least one of six homeowners now owes lenders more than their property is worth. Also due to the decline in property value, foreclosures in the past year have been reported to demonstrate a 40% loss of the total original loan. Creditors now realize that it’s more logical and practical to find ways to keep people paying off the loan rather than push them into bankruptcy by not offering them an option to modify their loans.
Several new programs have been introduced to keep foreclosure at bay. Borrowers may negotiate for loan forgiveness in the form of lower interest rates, longer payment terms (often extended to 30 or 40 years), and a deferral of the principal amount free of interest. Basically, how good a deal you can get from your creditor depends on how much of a credit risk you are.
It used to be that banks would only offer loan modification as an option to borrowers who are significantly behind on payments. Interestingly enough, this means that you only qualify for new loan terms if you’ve missed more than a couple of payments. For people who foresee a disturbance in their financial situation, intentionally missing payments seem like the smarter option.
The conflict then arises from the fact that you only get an achievable repayment plan if you’ve got a good enough credit score. This, and the not quite small issue about you having a hard time refinancing your home or getting a car loan or acquiring a new credit card.
Missing a few payments is no longer a requirement for obtaining a loan modification, however. Modification programs are still open to debtors who have missed a few payments but a pattern of missed payments or a delinquent account can disqualify you from participating in the program.
All you have to do is fight off the urge to be overwhelmed by the situation and get in contact with your lender at the first sign of trouble. You never know, your lender might just forgive your loan.