When borrowers apply and are granted loans, they don’t anticipate that uncertainties may come along the way and bring out unbearable financial difficulties. When you get into financial pit holes amidst a mortgage loan servicing, you need to approach your lender and discuss ways on how to get out of such a financial burden. There are two major ways you can initiate a mortgage loan alteration in the contract agreements. There can be a loan modification or a short sale resolution. It must be said that when the lender reexamines the borrower’s financial prospects, then an appropriate loan repayment solution is sort.

It must be realized that when you are faced with a loan repayment problem, it’s important to engage with the lender so that solutions can be sort out as fast as possible. This is because if the burdens on the repayment of the loan continue to exist, this can lead to far reaching detrimental results in the long run. The lender can lose the money and at the same time the borrower may lose other properties other than the house bought on mortgage. Therefore, the lender upon certain considerations is able to determine if to accord a loan modification or a short sale to the borrower.

A loan modification is arrived at when the bank sees that the borrower still has the ability to repay the loan when the contract agreements are made more flexible. In this case, the loan agreement is altered in order to enable the borrower repay the loan without much financial constraints. In loan modification, the lender may agree to extend the loan term, reduce the interest rates, reduce the principal amount, or reduce the monthly installment loan repayment amounts. In other cases, a combination of these factors is applied.

When the loan term is extended, this means that the monthly repayment installments are reduced or the interest rates are reduced. This eases the borrower off the burden of repaying the loan. Similarly, when the principal amount is reduced, this cuts down on the interest rate and the monthly loan repayment installments. In the loan modification plan, when the interest rates are cut down, this means that the monthly installment amount payable by the borrower is reduced too.

In the case of a short sale, the seller influences the lender to agree the house to be sold on a discounted price to a buyer and get an amount as part of the loan recovery. The amount is usually less than the outstanding payable amount and the lender agrees to forgive the borrower of the remaining amount. In the short sale, the lender is ready to terminate the loan contract in the shortest period possible and only wants to recover part of the remaining amount and the other is recorded as a bad debt since it’s not paid by the borrower. The short sale can be arrived at when the borrower is faced with financial pit falls, whereby the home owner is unable to repay the mortgage loan.

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