Are you planning on applying for a loan modification? If you are, ask yourself three questions first. Basically, in loan modification, the terms of a loan are altered or changed in favor of the borrower, so it will be something that he could manage. Except for mortgage borrowers, those who are unable to keep up with regular loan repayments often choose a loan modification as an option. Otherwise nasty things like foreclosures and black listings with the credit bureaus can occur. Often, credit counseling is performed prior to taking any steps towards loan modification. It has been a mistaken notion that loan modification is the permanent cure for loan repayment problems. But that is not the case. In fact, loan modification has its own set of disadvantages that you must be fully aware of before going into it. You must answer three questions first before you decide to do anything about getting a loan modification.
These are questions whose answers would tell you whether the modification is the right course of action for you, given your circumstances. These questions would also effectively lead you towards figuring out which type of loan modification you should go for. After all, loan modification can be done in a number of ways.
The first question would be: would you be able to repay the loan after the modifications have been applied? After the loan modifications has changed the terms of the loan, you may still be unable to pay it off. You may still find yourself having trouble meeting your monthly payments despite the loan modification. Be realistic, especially when it comes to your finances. Face the reality that the house you are paying for may have to be foreclosed since you cannot repay the loans, even if you have had it modified repeatedly. A sad but true fact: financial status change so fast, so drastically. Those things that they used to be able to afford in the past could no longer be within their reach in the blink of an eye. In some cases, measures like going for loan modifications can be manifestations of psychological denials of the unfolding realities. Still, if it (objectively) emerges that you will now be able to afford keeping up with your repayments after the modification, you should, by all means, go for it.
The second question would be: in the long run, will the loan modification be a fair deal to you? You may find that the modified loan will have you paying an amount that is twice as much as the amount which you originally owed. That is because the modification often leads to elongation of the repayment duration, and with that a huge increase in the effective interest rate paid.
The third pertinent question you need to ask yourself, before opting for loan modification, is the one as to whether you will be in a position to afford the fees associated with the modification. Often, when you retain attorneys or other relevant professionals to canvass on your behalf for the modification, you have to pay them fees running into thousands of dollars. Perform a cost-benefit analysis and try to figure out if all that cost will be worth the benefits you will gain from the modification of your loan.
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