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- IRS Supplies Guidance on Home loan Modifications
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- How to Write the Mortgage Hardship Letter
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The quick answer is that loan modifications should not cost you anything. At the very least, there should be no out-of-pocket cost when processing a loan modification. The truth, of course, is a little more complicated. This article will look into the real cost of a loan modification and how to avoid paying more than you need to.
Processing a loan modification should be free. If it isn’t, get suspicious.
There are experts and experts.
Unfortunately, since the real estate downturn that began in late 2007, some realtors, real estate lawyers and “consultants” have rebranded themselves as loan modification experts. These experts make money out of helping homeowners to refinance or modify their mortgages, often charging huge fees for their services.
The sad thing is that homeowners, who are already struggling to make ends meet, do not need to pay for help to process their loan modification. The government has created a program to fund certified housing counselors so you can access the best advice for free. Click here to find a housing counselor near you. These certified housing experts are paid to protect your interests and help you get the best deal you can in your situation.
Never pay for advice you can get free. If you do choose to pay for it, never pay upfront for services you have not yet received. This is not only a crazy way to do business, but it is also illegal to charge for financial services that have not yet been provided.
Loan Modifications may be free, but they can get expensive.
This is an important point to make. Your lender might modify your loan and reduce your monthly payments for free, but only in the sense you do not have to pay a processing or closing fee. The reality is that loan modifications can be very expensive. The reason for this is that loan modifications focus on making the mortgage affordable to homeowners struggling to pay their mortgage. The priority is to lower the monthly payments. This is done by lowering interest rates, extending the term of the mortgage and sometimes by reducing the balance of the mortgage. If your lender extends your mortgage by, for instance, 10 years, you will have to pay interest on the balance of your mortgage for 10 years more. This will increase the cost of your mortgage significantly. The length of your mortgage is actually the most relevant factor, together with your interest rate, that determines the ultimate cost of your mortgage.
Beware of loan modifications that simply lengthen your mortgage and do not reduce your interest rate or balance.
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