Is a 2% Modified Mortgage Rate Really Helpful?

What happens when a lender modifies a mortgage down to 2 Percent?

There are those out there who believe that a homeowner who has fallen behind in their mortgage payments will never be able to make their payments no matter what. This is the crowd who tout re-default rates on loan modifications as if all loan modifications are the same.

I am here to tell you that all loan modifications are not created equal. There are REAL Loan Modifications and there are repayment plans disguised as Loan Mods.

There are loan modifications made by lenders that are nothing more than a band aid on life threatening wound. These modifications are only for appearances and aim to squeeze every dollar out of the at risk borrower before they go under completely. This type of modification will usually result in a payment very close to the existing payment. (The payment that caused the borrower to fall behind in the first place).

Then there is the REAL loan modification made by lenders who are sincerely trying to help homeowners overcome economic adversity and solve the problem long term. This type of loan modification does not carry with it the same re-default rates of the modifications made for appearances.

The loan modifications I have seen where someone is in a sub-prime 8% mortgage that gets modified down to 2% usually make a life changing difference that enables a family to get their finances back in order.

Let's do the math together, a $300,000 sub-prime mortgage at 8% = $2,201.29 per month. This same $300,000 mortgage plus 4 months arrears may have a new capitalized principal balance of $311,000.00. If the lender is serious about making a real modification with sustainable payments it might look like this.

$311,000 re-amortized to 360 months = $1,149.52. It doesn't take an economics degree to see how this type of loan modification could give a new lease on life to the recipient. This represents a savings of $1,051.77. That's more than $12,000 per year saved or even more impressive, more than a $375,000 savings over the life of the loan.

I have seen families who have received this type of assistance from lenders who are sincere in there modification efforts. These families typically DO NOT re-default, despite the rhetoric in the alternative.

If you are going to try to achieve results of this type on your own mortgage it will be important to understand the parameters. It might take a number of attempts before your lender will modify your loan. Don't give up, never give up. As you can see the rewards realized from attaining this type of modification are well worth the effort.

The author is an expert in the field of loss mitigation negotiation and offers Do It Yourself assistance on his forum.

Dan Harris wrote the book on loan modifications "How To Modify Your Mortgage". He also operates Harris Capital Management, The Home Retention Group and LoanModMan.com. Dan is headquartered in New York and can provide detailed information on Loan Mod Techniques & Strategies, Loss Mitigation, Title Insurance Issues, New York City Real Esatate and more. Dan is also available for seminars and speaking engagements. He can be reached at LoanModBook.com or LoanModMan.com