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The Best Options when Faced with a Serious Mortgage Repayment Problem

When you apply for mortgage loan advancement, you don't expect that a financial uncertainty will strike somewhere along the way as you continue to repay the loan. When such uncertainties strike, you need to take a bold step to approach the mortgage loan lender and seek solutions to the problems.

Author: Chris Rod
Date: Oct 3, 2011 - 8:43:49 AM


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When you apply for mortgage loan advancement, you don’t expect that a financial uncertainty will strike somewhere along the way as you continue to repay the loan. When such uncertainties strike, you need to take a bold step to approach the mortgage loan lender and seek solutions to the problems. There are many ways you can handle this situation. For instance, you can negotiate for a loan modification or a short sale. You can take another loan to repay the existing mortgage but this is not a good option since multiple borrowing can be risky.

You can also adopt foreclosures where the borrower stops making payments and the lender takes possession of the house. However, a foreclosure has a lot of implications on both the lender and the borrower for instance, tax implications on the lender and credit worthiness problems to the borrower. Therefore, a loan modification and a short sale may be the most viable options to adopt in case of a mortgage repayment problem.

A loan modification is simply an alteration of the agreement to favor the borrower to repay the loan without much financial constraints. The short sale on the other hand is arrived at when the seller feels that the only option is to let go of the house in order to repay the amount owed. The seller or seller’s agent approaches and influences the mortgage lending institution to agree on receiving some of the amount from a discounted sale of the house. In this case, the lender agrees to forgive the remaining amount. In the short sale the lender doesn’t want to receive the property since there are other complications when the ownership is transferred to the lender.

With the loan modification, the lender agrees to alter the agreement so that the borrower can be able to repay the loan with ease. This is however subject to a lot of scrutiny since the lender has to ascertain that the borrower really deserves such a loan agreement modification. For example, there are financial, employment and hardship factors which are considered and the borrower should meet such qualifications. The loan modification may entail one or a combination of any of these factors; an extension of the loan term, a reduction on the interest rates or a reduction on the monthly repayment installments.

When the interest rates are reduced for the loan advanced, this means that the monthly installment amount payable is reduced or the period of payment is reduced. In the same way, when the principal amount is reduced in the loan modification, this means that the interest rates or the loan term (loan payment period) is reduced. It must be said that the loan modification and the short sale are arrived at after a lot of considerations and evaluations of both the lender’s financial interests and the borrower’s ability to repay the loan. The short sale can be arrived at when the lender foresees an inability of the borrower to repay the loan in the near future.

Christopher Rodriguez is the author of this article on Loan Modification. Find more information on Short Sale here.



View all articles by Chris Rod

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