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Know your options
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Prepare your case
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Contact your lender
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Review the offer
5
Sign the agreement
If you are struggling to pay your mortgage, you may be able to negotiate a loan modification and interest rate with your lender. A loan modification is a change in the terms of your original contract that makes your payments more affordable and helps you avoid foreclosure. However, getting a loan modification is not easy and requires careful preparation, communication, and documentation. In this article, we will guide you through the steps of negotiating a loan modification and interest rate in the context of contract negotiation.
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1 Know your options
Before you contact your lender, it is important to research the different types of loan modifications available and the eligibility criteria for each one. Forbearance is a temporary reduction or suspension of payments for a certain period of time, usually due to a hardship such as unemployment, illness, or natural disaster. Repayment plans involve paying back the missed payments over a specified period of time, usually by adding a portion of the past due amount to your regular payments. Rate reduction is a permanent or temporary lowering of your interest rate, which reduces your monthly payment and the total amount of interest you pay over the life of the loan. Term extension is a lengthening of the duration of your loan, which lowers your monthly payment but increases the total amount of interest you pay over the life of the loan. Principal reduction is a rare and costly option that involves reducing the amount of money you owe on your loan, which lowers your monthly payment and the total amount of interest you pay over the life of the loan.
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2 Prepare your case
If you are looking to modify your loan, you must first gather the necessary documents and information to support your request. This includes a hardship letter that explains why you are unable to make your current payments, how a loan modification would help you, and what steps you have taken to improve your financial situation. Additionally, you must provide a budget that shows your income, expenses, assets, and liabilities, as well as proof of income and hardship. Lastly, you must provide a copy of your mortgage statement and any other loan documents that show your current terms and balance. Collecting this information will demonstrate to your lender that you have a valid reason for needing a loan modification, that you can afford the new payment, and that you are committed to keeping your home.
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3 Contact your lender
After you have prepared your case, you should contact your lender and ask for a loan modification. You should be polite, professional, and persistent, and be ready to explain your situation and your proposal. You should also keep a record of all your communications with your lender, including the names, dates, and details of each conversation. You may have to deal with different representatives or departments, so it is important to follow up and confirm everything in writing. You should also be prepared to negotiate and compromise, as your lender may not agree to your initial request or may offer you a different option.
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4 Review the offer
If your lender agrees to a loan modification, you should carefully review the offer and make sure you understand the new terms and conditions. It is important to compare the offer to your original contract and budget, and calculate how much you will save or pay in the long run. When reviewing the offer, consider the new interest rate, payment amount, and loan balance, as well as the duration and type of the loan modification. Additionally, be aware of the fees and costs associated with the loan modification, the impact on your credit score and tax liability, and the consequences of defaulting on the loan modification.
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- Flávia R. da Silva-Benson, Esq., CHESP Environmental Infection Prevention and Regulatory Compliance | Founder at Dovetail Mortgage
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In some situations a borrower may receive a forbearance agreement instead of a modification agreement for the current loan. Be aware of these differences and how it impacts the loan balance, and term. A forbearance agreement will take your late payments and add them to the back of the loan balance. It may help with late payments by starting fresh, but may not help with the overall hardship of affording the current payment as is.
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5 Sign the agreement
If you are satisfied with the offer and want to accept it, you should sign the agreement and return it to your lender as soon as possible. You should also keep a copy of the agreement and any other documents for your records. You should also make sure you comply with the new terms and conditions, and make your payments on time and in full. If you have any questions or concerns, you should contact your lender or a trusted advisor.
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- Barbara Maloney VP Loan Servicing Synergy One Lending
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Your mortgage company may also need to execute the document. Be sure to request a final copy, fully executed, notarized and recorded with the county. Also, make sure the notary properly completes the notary section. I have seen loan modifications sent back that were not done accurately.
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