Are you looking into a loan modification and are wondering how much it will cost? Maybe you are considering lowering the loan payments but don’t want to be stung by hidden charges? Whatever your reason might be, we have the answer for you!
We know how stressful managing your finances can be, and when times get tough, we often look at ways to reduce our outgoings and repayments if possible. Loan modifications allow us to do this, but with many of us worrying about hidden fees, we put it off and never get around to it.
Well, no more! Today we are here with all the answers you need. Keep reading to find out how much a loan modification costs and get your other burning questions answered now.
Before we get into the article, let’s have a quick recap for those that need it! A loan modification is when changes are made to an existing loan.
The changes are usually made to lower the monthly payments or the time frame of the loan. The modification or changes to the loan often happen when you (the borrower) struggle to meet the originally agreed payments.
Loan modifications allow you to keep paying the loan without missing any payments. It helps avoid any issues you might encounter and stops the need for lenders to contact you or take legal action against you.
The modification changes the conditions of your loan, meaning you won’t need to pay off the loan or mortgage to take out another one or replace it. It’s often offered to people struggling with their finances as an attempt to help them.
If you find yourself struggling to make your payments, speak to your lender about a loan modification. It is often in their best interest to modify the loan for you.
That way, they still get their money and can rest easy knowing that you are making the payments. It also allows you to continue to pay off your debt in a more manageable way.
Now that we have covered what a loan modification is, let’s see how much it costs!
The cost of a loan modification varies depending on the lender and the mortgage or loan you have agreed to. As loan modifications are frequently used on mortgages, they will make up the basis of this article.
In many cases, you can adjust your mortgage loan for free! That is fantastic news for those struggling to pay and who don’t want to be hit by additional costs. You can speak to your lender directly or pop into the bank and see if a loan modification is possible.
In other cases, you will be expected to pay a fee. The fee is designed to cover the adjustment cost, necessary paperwork, and the time it takes for the modification to be processed.
The fee can vary depending on the lender and how they determine them. It might be calculated as a percentage based on your mortgage or a flat fee which can range from a small fee or cost you thousands.
The modification fee will be listed on any paperwork relating to the modification. It will also be made clear to you when you speak to your lender, allowing you to decide whether or not to proceed with the loan modification. In the cases of mortgages, there is most likely no charge for the adjustment.
When it comes to other loans such as business or personal loans, you are more likely to see modification fees. Again, this varies depending on the loan and the lender.
When you first apply and sign for your loan, the fine print should detail any fees you would have to pay if you modify the terms of your loan at any point.
If you do not have this information at hand, you can contact the lender directly to find out if there will be a fee attached or not.
If there is a fee attached and it is quite large, be sure to speak to a financial advisor for more tailored advice. They will look at your finances and find alternative methods to allow you to pay what you can afford without incurring unexpected charges.
Thankfully, most loan modifications come without a fee, allowing you to make the necessary changes worry-free.
Now that we have established the fees of loan modifications let’s quickly look at the other implication: your credit score.
When you modify your loan, you can find yourself worrying that your credit score will be negatively impacted, impacting your chances of being approved of other loans later down the line.
Thankfully, you don’t need to worry! A loan modification should not affect your credit. You might notice an initial drop, but it should not last for long or impact your chances at securing loans or car leases, for example.
Your credit should not be impacted as you are still paying the loan and meeting the newly agreed terms. It is unlikely to leave a long-term negative impact on your credit, allowing you to borrow money later with ease.
However, there are times where loan modifications can leave their mark on your credit. If you try to take out a large loan a few months after modifying your loan, you will likely raise some questions.
You might find it difficult to secure large loans so soon, as lenders will be wary of lending to you. From their point of view, you have lowered your debt obligations and are now looking to take on more loans to pay back, and they will wonder how you will pay them and your other loan obligations.
In these cases, it’s best to be direct with lenders or hold off a few more months before applying for other loans.
Another time where loan modifications can affect your credit is when you do a short refinance. These are when your property has lost value, and the lender agrees to write down the principal and offer you a new loan.
What you do here is essentially a short sale to yourself. These can be difficult to arrange and will show up as a debt written off on your credit for seven years, making securing future loans tricky.
And just like that, we have come to the end of our journey today. As you can see, the cost of a loan modification varies depending on the loan or bank, but more often than not is free!
Remember to check for any fees before proceeding with a loan modification and to seek financial advice if you have any concerns along the way.