Length Of Loan Modification Term

What is the length of term Lenders are required to give you in regards to length of repayment?

Mortgage Loan Modification Answer:

by Loan Modification Expert - Dan North

On a straight Repayment Plan there are no limitations but usually lenders want the length of time to be as short as possible from months up to a year.

Although many lenders will give you a Repayment Plan when you ask for a loan modification they are not the same thing. All a repayment plan does is increase your monthly mortgage payment until the delinquent payments are made up and the loan is again current.

A mortgage loan modification will modify the terms of your mortgage so that the loan is actually restructured. This is normally reducing the interest rate then extending the length of the loan up to 40 years and sometimes a principal forbearance that waives interest payments on a portion of the loan and rarely a straight principal reduction that waives a portion of the principal owed.

Extending The Length Of A Mortgage Under The Making Home Affordable Program

The Making Home Affordable Modification Program - HAMP, does have guidelines that allow the length of the mortgage loan to be extended up to 40 years to help lower the monthly mortgage payment.

HAMP requires that first the interest rate is reduced to as low as 2% then the length of the loan extended to as long as 40 years. If after the first 2 steps the monthly mortgage payment is not less than 31% of your monthly gross income the next step is to reduce the principal balance until the mortgage payment is equal to 31% of your gross income. The amount your principal is reduced to reach 31% of gross income is made interest free but you would still owe the amount reduced when your home refinances or is sold.

The final test to determine if that modification will be approved is called a Net Present Value - NPV. Basically this test will determine if the lender loses less money by modifying the loan or foreclosing on your home. If it is cheaper to modify the loan then it will be approved. If it is cheaper to foreclose on the home the modification will not be approved.

Extending The Length Of A Mortgage Outside Of The Making Home Affordable Program

If the mortgage loan modification that is being done is not a part of the Making Home Affordable Modification Program there are no limitations on the extension. I have heard of loans being extended to 45 and even 50 years but the increased cost of the loan usually does not reduce the monthly mortgage payment by a significant amount so is not of much benefit. 40 years is about as long as you want to extend a loan.

Use the Mortgage Payment Calculator (below) to see what happens to the payments when you extend the number of years.

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