Loan Modification Options for California Homeowners

Millions of homeowners have applied for and gotten loan modifications in the past year, mostly as a result of the Obama administration's loan modification program. But efficient as it is, few homeowners are aware that loan modification takes on many forms--and that each one suits a different kind of borrower. If you're working with a loan modification attorney California firm, it helps to know at least some of your options. Below are some of the most common forms of loan modification and how they can help you.

Interest rate reduction: This is the most common solution and often the primary approach of a loan modification attorney California. As the name implies, the lender simply cuts down your interest rate. To give you an idea of what it does, cutting the rate from 6% to 3% on a 30-year fixed-rate mortgage can reduce monthly payments by about 30%.

Loan term extension: A lender may also decide to extend the loan term rather than reduce the interest rate. They are generally more expensive for the lender and are thus given only in special cases, often when a sub-prime adjustable-rate mortgage reverts to the regular rate. Extending a 30-year mortgage to 40 years cuts down monthly costs by about 8%.

Financing of arrears: If a borrower has accumulated a large amount of late fees, the lender may decide to add them to the loan balance instead of charge them up front. This will make the payments temporarily higher, so it usually doesn't work for most borrowers. However, this is often a bank's first offer because it costs them less than most types.

Interest rate freeze: This plan is generally designed for people who have adjustable-rate mortgages where the introductory period is nearing its end. Before the interest rate jumps to twice the current rate or more, the lender "freezes" it so that it stays affordable. This costs more for the bank, however, so it takes a good deal of negotiation to get approved.

Principal reduction: Under this plan, the lender simply forgives part of the amount owed on the home. This generally makes the most savings for the borrower, but constitutes the biggest loss for the lender. To get a principal reduction, one may need a loan modification attorney California with specific experience to justify his cause.

Remember, not every plan works for every borrower, and sometimes one is simply better off with a different solution. To help you better understand your options, find a competent California Loan Modification Attorney and start working on your loan modification today.