A loan modification serves as the best alternative to foreclosure.
It comes as great relief for those thousands of home owners who are struggling to repay their mortgages.
If you are planning to modify your home loan mortgage, then it is important for you to research and understand various types of loan modifications before actually applying.
Basically, there are 4 options: 1.
Straight Capitalization This is one of the more common modification types.
In this type, any interest due is added back to the principal amount and then amortized under same terms and conditions of existing loan.
But this is effective only for those who want to bring down current interest rate.
Monthly installments in this type is generally high.
2.
Term Extension In this type of loan modification the term of the existing loan can be extended to maximum tenure so as to reduce the monthly installment.
This type of modification best suits those home owners who are looking for lower monthly installments.
3.
Step Rate If you are worried about your home loan interests then this one is just right for you.
Interest rate is adjusted to make monthly installments more affordable to home owners.
4.
Reduced Rate In this type interest rate is lowered for the rest of the loan term, unlike step rate, where it is adjusted.
All the above types of loan modifications are offered by various banks and financial institutions to facilitate home owners in repaying home loan dues.
These options will help in making monthly loan installments more affordable and easily payable.