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A mortgage modification could help if you have an adjustable rate

On Behalf of | Aug 14, 2017 | Blog

When you were buying your home, you needed financing in order to close on the place you wanted. Because of the high-pressure market, you may have decided to take out a loan that wasn’t ideal in order to secure a home. Adjustable rate mortgages (ARMs) can help people obtain financing, but they can also have a negative impact on your long-term financial plans.

Some mortgage brokers and lenders intentionally push ARMs because interest rates have been at historic lows over the last decade. They know borrowers want financing when rates are low, but lower interest rates limit the profit a bank can make on a loan. An ARM allows the bank to offer an attractive rate in the short term, with changes in the future after a fixed period of time. Now that rates have risen and will likely rise again, those with ARMs may quickly find themselves struggling to keep up with increasing interest and payment demands.

Loan modification could protect you from future rate hikes

All signs point to the Federal Reserve increasing the prime interest rate in the near future. Over the next few years, rates will rise as financial policy moves to curtail inflation and other market concerns. Homeowners with ARMs could soon see a substantial increase in accruing interest and monthly payments as a result. The only way to protect yourself from an unsustainable home payment is to modify your mortgage and seek a fixed rate solution.

There are a number of reasons why people choose to modify loans. Perhaps local home values have increased or decreased substantially. A modification could help lower your payments or put a stop to foreclosure proceedings. However, because it will cut into the potential profits on your mortgage, your lender could be reticent to adjust your mortgage at your request. You may need professional outside help to advocate for you and help you keep your home.

Loan modifications can help save your home and your equity

If you lose your home because you are no longer able to afford monthly payments, you will lose all of the equity you’ve established over the life of your mortgage and home ownership. Your home is likely your biggest investment. If you lose your home, you don’t just lose a place to live. You lose every cent you’ve invested in it, from mortgage payments to replacing the roof.

Working toward a loan modification can protect your investment and your home. Lenders could agree to work with you in order to avoid the hassle of listing a bank-owned property on the market. Seeking a modification can be a mutually agreeable solution to an otherwise difficult situation. Don’t wait until you’re on the verge of losing your home. Look into a modification now, before rates go up again.