San Diego Homes

Loan Modifications Can Add Thousands of Dollars to the Principle of Your Home Loan

A study released by the Federal Reserve agency in San Francisco found that mortgage modifications can add thousands of dollars to the principal amount of the loan. The Federal study found that the reluctance of the mortgage companies to reduce that amount of principal  limits the effectiveness of the modifications, especially in the areas that have been hardest hit by the severe decline in home prices.

Lenders are currently giving home owners temporary reductions in mortgage interest payments. Not many mortgage companies reduce the principle of the loan, even though the amount owed on the home maybe far more than the home is currently worth. Lenders are adding any missed mortgage payments to the principle of the loan, which is a necessary condition to receiving a loan modification. The average homeowner that receives a loan modification can expect to see a $7,400 to $8,200 increase in their loan balance.

Reducing the principle on the loan is an indispensable means of preventing foreclosure. Loans that include a reduction in the principle amount are less likely to default again. This is especially pertinent in California, where home prices have plummeted, and most people owe more than their home is worth.

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