What to Look for when getting a Loan Modification Agreement with your Bank

A loan modification agreement is a legally binding agreement your lender provides that changes the terms of your existing loan without refinancing or obtaining a new loan. The agreement itself is generally and addendum to your original loan agreement or a completely new loan agreement similar to the one you signed when you first obtained your loan.

There are many different types of loan modification agreements and the lender will typically review your hardship package to find the right solution. Typically, the type of loan modification that is chosen depends upon your financial situation and what is going on that has caused you to become delinquent on your payments or put you in financial hardship. Below, you'll find a list of the types of loan modification agreements that are most common.

To download free samples of each one of these you can click here now: Loan Modification Agreement sample

  • Forbearance Only Agreement
  • 5 Year Interest Rate Reduction/Amortization
  • True Fixed Rate
  • Step Loan Modification
  • Piggyback Forbearance
  • Payment Deferment
  • Re-Payment Plan
  • Foregiveness of Debt

With a forbearance only agreement, the loan is recapitalized, and some or all of the interest will be added to the end of the loan. The payment plan will help the borrower become current in his payments and avoid foreclosure, because the lender agrees not to pursue foreclosure while the forbearance payments are being made.

A 5 year interest rate reduction agreement and amortization is a little different from the forbearance agreement. With this loan modification, the interest rate would be reduced to about 2-4% for the first five years. After the five years is over, the interest rate would return to normal and the borrower would take the remaining thirty to forty years to pay off the mortgage.

A true fixed rate loan modification agreement would set the borrower's interest rate at a lower percentage – typically for thirty to forty years. The interest rate typically falls somewhere between 3-5%. The lower interest rate usually makes it easier to make the mortgage payments and keep from getting behind.

A step loan modification agreement: An example might be that the interest goes down to 2% for the first two years, 3% for the third year and then 5% for the life of the loan. This accomplishes two things – it allows the borrower to have a big break in the beginning and then become slowly accustomed to higher rates.

A piggyback Loan Modification Agreement: Allows borrowers to make forbearance payments without being charged interest on a portion of the loan balance, so that they have an easier time getting current.

Payment Deferral Agreement is when your lender allows one or more of your mortgage payments to be deferred generally to the end of the loan. This means that instead of 360 payments you end up with 361 payments, if one payment is deferred. If you have good payment terms with them or upheld a prior agreement with them this may be an option.

The repayment plan loan modification is when your lender allows you take your delinquent interest and it spread it out over several payments to get caught up. This is not to be confused with the payment deferment or forbearance plan mentioned above.

Cancellation of Debt or Principal Reduction is when the lender agrees to reduce the overall amount you owe them. The recent enhancements to the Obama Loan Modification programs are calling for this, but the only lender than has formally agreed to look at principal reductions is Bank of America as of this date. We are hopeful that other lenders will start to follow suit soon.

If you want to keep up to date on lenders that are providing principal reductions as they announce it please sign up to our mailing list at: www.optinpage.com

These are just a few examples because each lender and investor has different loan modification agreements they provide. However, each of these types of loan modifications can be extremely helpful to a borrower who is struggling to make the mortgage payments each month.

For more details on all Loan modification programs available to you and how to apply for a loan modification quickly you can download our book now to get started today: Loan Modification eBook