Why Loan Modification Can Cost You More in the Long Run: What Every Homeowner Should Know

Are you making the best choice for your future by going through with a loan modification? Most homeowners don’t realize the negative impact a loan modification can have on them now and in the future.

We often hear homeowners saying they have completed more than one loan modification application because the mortgage company has sent them the paperwork more than one time, claiming something wasn’t correct on the first one you returned to them. But the truth is… the mortgage company receives funding for every loan modification application that is submitted, whether they go through with the modification or not. I guess that makes it not so surprising that less than 20% of applications are accepted.

Additionally, homeowners don’t realize that when they do a loan modification, it's like restarting your loan on day 1. This may not seem like that big of a deal, but it adds up to thousands more in interest over the lifetime of the loan. You see, the way mortgages are set up or amortized, the interest is paid at the beginning of the loan. Somewhere around years 12-20, you finally start paying more principal than interest. So, when you do a loan modification, you are essentially starting the loan over on day 1. Not only does this increase the interest and length of time you have to pay, but it also usually adds all the back payments and late fees to the back of the loan, increasing the principal balance and reducing any potential equity in the home. 

The real reason this is so problematic, though, is that the data says 2 out of every 3 people that do a loan modification end up defaulting on their loan again. This leaves them with less options for getting out of foreclosure than they had the first time. We often see people owing more than the home is worth when this happens. 

Looking for more information about what you should do? Book a time to discuss your options.