Types of Loan Modification

Get your loan modification under Obama’s Making Home Affordable Program

The loan modification process provides a legal alternative to prevent a foreclosure for many struggling homeowners. Many types of loan modification programs provide a facility to alter or modify your existing loan terms and conditions to make the loan more affordable to repay. The following options can aid you in modifying your existing loan as per Obama’s “Making Home Affordable Program”.

Straight capitalization loan modification

In this particular type of loan modification, any pending dues arising out of delinquency are added to the actual loan amount, and the existing loan is modified with new loan terms, to make the loan easier to redeem. So in this type of loan modification the borrower pays an affordable rate of interest as compared to the original loan. The main function of this loan is to cater to the delinquency status, and bring all outstanding amounts to date. Typically, in this type of loan modification the applicant has to prove his or her credit worthiness to meet the monthly payments.

Loan modification with term extension

This type of loan modification is used to lower down the monthly payments and make the loan more affordable to repay. Alternately, one can also extend the loan term. However, the extension can’t be more than the original loan tenure.

Step rate loan modification

This type of loan modification is used to adjust the loan interest rate, rather than changing the loan term. The purpose is to make the monthly payments more affordable. Usually, in this particular type of loan modification, the rate is decreased up to 3% for some time, and subsequently it rises back to it’s original status. So this loan provides temporary relief to the borrower if he or she is suffering severe financial hardship, and is likely to successfully repay the loan after in the coming months.

Reduced rate loan modification

Unlike the step rate loan modification, in case of a reduced rate loan modification, the loan interest rate is permanently lowered down to make the repayment easier. The rate does not attain it’s original status subsequently, and the new reduced rate becomes a part of the loan modification. It remains steady, and does not change.

Basically, all the types of loan modifications are specifically designed to make the monthly payments more affordable, and to support a successful loan redemption by incorporating some changes in the existing loan terms and conditions. The two main loan criterions are the interest rate and the loan term. The loan modification is carried out by altering either of these factors. The main objective of the loan modification process is to help borrowers facing severe financial hardship make their loan more affordable to repay.