No, it's not the latest taebo-pilates-zumba routine. But if you're weighed down by foreclosure, a loan workout may be just what the debt doctor ordered to help put your loan back on track.
A loan workout is plan of how to restructure debt in the face of foreclosure. It is also called loan modification or mortgage modification. In loan workouts, the home owner sits down with the lender to discuss modification of terms to the loan in order to make monthly payment minimums and sidestep foreclosure. The parties must mutually agree on modified loan terms for the loan workout to be successful.
What does the lender look for?
The lender will examine why the homeowner is unable to pay the loan and the likelihood that he or she will be able to pay if the terms are modified. Specifically, the lender will look at factors including:
- the nature of the hardship that has led to the homeowner's inability to pay
- the total amount that is still owed on the loan
- how much equity has been earned on the property
- whether the homeowner has future financial prospects
- whether foreclosure or a loan workout would be more optimal for the lender.
In what ways can a loan be modified?
- missed payments can be added to the existing loan balance
- the lender may agree to change the interest rate, even making an adjustable rate into a fixed rate
- the total number of years allotted to repay the loan may be extended
Contact your lender to learn more about whether a loan workout or loan modification might be a good alternative for you and your specific circumstances.
- Loan Workouts (FindLaw)
- Explore Loan Workout Solutions with Your Lender (Federal Housing Administration)
- Six options for distressed borrowers (Summit Daily News)
- Negotiating a Short Sale or Loan Modification (provided by Marlyn J Wiener PA)
- Debt Settlement Plans: The Good and the Bad (provided by Clark Law Offices)