3 Major benefits associated with loan modification
The lenders do not want the debtors going into bankruptcy. In fact bankruptcy is the worst case from the point of view of the creditors as well as the debtors. It is quite often seen that many lenders go the way of loan modification keeping in view the long-term inability of the debtors to repay the loan.
Loan modification is nothing but relaxation of the original loan agreement so that the debtors can repay at least some portion of the total outstanding debts. Loan modification can be of different types such as the reduction of the rate of interest on the loan, an extension of the loan term, an altogether different type of loan or any combination of the three. A lender may be willing for loan modification because the cost of loan modification is less than the cost of default.
It is seen that debtors sometimes seek for loan modification help for genuine reasons and sometimes just to get some kind of relaxation in the original loan agreement. But, the lenders assess the financial position of the debtors before granting loan. And, when a debtor seeks for loan modification, that time also, the lenders review the finances of the debtors. So, quite naturally, casual and unjustified demand for loan modification gets rejected. However, genuine demand for loan modification stays. If the lenders realize that the debtors will no way be able to repay the loans, they allow for loan modification, because through loan medication process they can reduce their loss. Whatsoever, there are distinct advantages associated with loan modification. The benefits of loan modification are listed below.
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Reduces rate of interest as well as the monthly payments
One of the major advantages of loan modification process is that it lowers down the rate of interest. However, the degree of reduction depends upon the discretion of the lenders. Generally 3% to 7% reduction in the rate of interest is considered by the lenders. The reduction in the rate of interest in turn lowers down the monthly mortgage payment that you make.
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Extends loan term
In some cases, after judging the financial condition of the debtors, the lenders agree to extend the loan term period. Sometimes the reduced monthly payments suit the debtors. But they have to bear the agony of making the payments for an extended period of time.
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Preserves the home ownership
In the earlier days, the only outcome of default or deferred payment was bankruptcy. However, the introduction of the concept of loan modification has changed that perception. The important aspect of loan modification is that it preserves your right of home ownership. It also helps the lenders to reduce their losses, as it is certainly better than the debtors going into bankruptcy.
One of the ways available to the debtors, who are genuinely finding it hard to repay the debts, is to seek the help of professional loan modification companies. These are specialized companies who have helped individuals obtain modified loan agreement and secure ownership in the home.
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